[iso1210]

The amount of value they add

Company X needs to employ two people in a role. The person they employ will add $100 an hour of value to the company.

Person A has lots of money in the bank from a large inheritence and doesn't need the job to live

Person B has desparately needs a job to pat the mortgage

Company X offers both $40 an hour

Person B takes the offer, as the alternative is reposession

Person A says 'no'

Company X still wants that extra $100 an hour of value, so offer person B $50 an hour, then $60. Person B then accepts at $60.

Both person A and person B are worth $100, neither get paid what they are worth, but person A is paid 50% more than person B.

[rcoveson]

So if a crippled person needs somebody to go to the bank and withdraw $1,000 for them, and they figure they can hire somebody trustworthy for $50 to do the errand, is that person not being paid what they’re worth, because they added $1,000 dollars of value?

If person A in your narrative was capable of creating $100 dollars of value all by themselves, they would do that instead. But they can’t. The $100 opportunity exists because of the company.

The company needs a shovel strong enough to dig up the $100. If one person will sell such a shovel for $40, and that’s the best price available, they’ll take it. That was the market value of shovels. It would be wrong to say the shovel was worth $100. Even if all the shovel sellers in the area knew about the details of this opportunity and decided to set they’re prices at $99, it would quickly become apparent that shovels aren’t really worth that. Two things would happen: sellers would defect and set they’re prices lower than $99 to secure the deal; this would happen as long and there was still and profit to be made. And the company would remember what a shovel was supposed to cost, get suspicious, and look in to manufacturing a shovel of they’re own, or commissioning a rake shop to make one.

This game of price setting is pretty good at approximating worth, especially compared to your proposed strategy of measuring the delta between company profits in reality, and in an alternate reality where the employee didn’t exist and the company didn’t attempt to fill their position with anybody or anything. The latter is not worth talking about.

[aalleavitch]

If the company could not possibly get that $1,000 in any other way, then yes the employee is worth $1,000. Without the willing participation of labor, a company cannot produce. If labor is fooled or coerced into working for less than it's worth (say, because otherwise they'll starve or lack health insurance), they are not operating in a free market. They are not getting paid according to their value.

[EliRivers]

So if a crippled person needs somebody to go to the bank and withdraw $1,000 for them, and they figure they can hire somebody trustworthy for $50 to do the errand, is that person not being paid what they’re worth, because they added $1,000 dollars of value?

This is a terrible example. Moving something is not the same as creating that something. Moving $1000 could be worth nothing. It could have negative value. It could be worth millions.

[rcoveson]

Right, and there are many things in between. Maintaining an object, improving an object, combining objects to make complex object, etc.

If you’re in the business of creating useful objects out of basically nothing, you don’t even need a company. Maybe you hire somebody to sell your objects for commission, or maybe you sell them yourself.

If you’re looking for a closer analogy, try the shove analogy. Why is it that despite the fact that the shovel makers are creating an object, even out of nothing, that they aren’t worth what is dug up with them? Software engineers are a lot like the shovel makers. Sometimes the shovels we make are used in extraordinarily profitable ventures. But their value is still determined by how hard it was to make them, and to learn the skills to make them. Not what the company uses them for.

I think it becomes hard to see when all the shovels being made are bespoke. Lots of software is written to fill one role for one client. That client will often use that particular thing to make lots of money. So maybe it appears like that thing bit of software created all the value? But this is clearly false. The fact that some part of a system is essential to the whole system’s success does not imply that the worth of every piece of the system is equivalent to the worth of the whole system.

[justanotherc]

This is a good way of putting it. All these "run your own agency" self-help courses have been pushing "value based" pricing with the promise that you can slap together a Wordpress template and charge $40k for it because of the "value" a website brings to the company is mostly nonsense IME. Stuff is built by the lowest competent bidder, period.

[rcoveson]

> This is a terrible example...

...and then you go on to describe the reason it's a great example.

I'm contending with the belief that somethings "worth" is determined by the effects it has, specifically the effects on the profits of a corporation. As you've pointed out regarding my "move $1000 example," the effects something has can vary in scale from the actions that brought them about. The cost of moving an object of a certain weight a certain distance with certain security measures is pretty stable. The secondary effects, on the other hand, could be massive.

Employment is the same way. One is paid to do a task in proportion to how much others who are capable of it would do it for. That amount is almost totally disconnected from the profits (or losses) the employer reaps from having that task completed for them.

[EliRivers]

I see. I think you worded it quite badly. This in particular; "because they added $1,000 dollars of value?"

This suggested that they had added a thousand dollars of value, whereas you presumably meant no such thing? Your example gave me the impression that we were in direct disagreement.

Continuing the discussion, now that I understand what you were saying; having recognised that what people are paid is disconnected from what value they bring to a company (and thus that someone could be worth millions to a company, but paid peanuts [0]), is it right that recompense is "almost totally disconnected from the profits (or losses) the employer reaps from having that task completed for them"? This is something of a moral judgement and we stray into different grounds; the great god Market is very popular hereabouts.

[0] Some argue that by defintion, what someone is paid is what they are worth. Fortunately, because that is presented as a simple definition, we can discard it as easily as it is presented.