[ranma4703]

Do you think that companies pay based on productivity, or based on the minimum amount they need to pay in order to attract workers?

If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?

[BobbyJo]

> Do you think that companies pay based on productivity, or based on the minimum amount they need to pay in order to attract workers?

It's both. Productivity has a very direct effect on the minimum amount they need to attract workers. If a low skilled worker can produce 100$ an hour of value, and you're paying them 10$ and hour, someone else will very quickly be willing to pay them 11$, or 12$, etc. Suddenly, you have to pay several times what you did before in order to keep your employees or attract new ones.

> If the former, do you believe that if a remote worker moves from NYC to Idaho, and their employer cuts their pay by 25%, it is because their productivity has dropped by 25%? Or because their employer knows they can get away with paying them less in an area with lower cost of living / less high paying jobs?

Same as the other answer. In NYC there are more companies competing for your employee, so you have to pay more to keep them. Competition in the middle of nowhere is restricted more so than in the middle of NYC.

[pydry]

>It's both. Productivity has a very direct effect on the minimum amount they need to attract workers.

Productivity only puts a ceiling on the amount they'd be prepared to pay for a worker.

It doesn't affect the minimum amount required to attract them. That's determined by competition (i.e. who else is out there) and leverage (how much they need the job).

This is why business leaders lobby hard to reduce public sector wages/pensions (so private sector doesn't have to pay as much to compete for workers) and public benefits (like universal health care), which reduces worker leverage => reducing wages => increasing profits irrespective of worker productivity.

[BobbyJo]

Your second paragraph refutes your first. Productivity is an input to the supply of competition, so it does more than create a ceiling, it also serves as an upward force on the floor.

Do business leaders lobby to reduce public sector wages and benefits? That's not something I've heard before. In any case, whether or not there is competition from the government, if there is a gap between productivity and wages, then there are profits to be had by private companies willing to do the arbitrage. In the case of such a gap, the government doesn't really matter unless they are paying above the productivity rate.

[pydry]

How is productivity an input to competition among the minimum waged?

[ashtonkem]

> Productivity is an input to the supply of competition, so it does more than create a ceiling, it also serves as an upward force on the floor.

This is trivially disprovable. Did grocery stores increase the wages of their clerks once self checkout was a thing, or did they keep wages the same and lay off some of them?

Productivity only affects wages when there’s competition for labor, not when there’s competition for jobs. When there’s competition for jobs productivity gains are captured by the company, not the laborer.

> Do business leaders lobby to reduce public sector wages and benefits?

They absolutely do, yes. I’m genuinely baffled how you’ve never heard this. The Chamber of Commerce crowd is always trying to shrink governments (and their tax bills), and attacking public unions is a big part of this.

[BobbyJo]

> This is trivially disprovable. Did grocery stores increase the wages of their clerks once self checkout was a thing, or did they keep wages the same and lay off some of them?

That doesn't disprove anything. Productivity is an input to and has an effect on demand, but it's not the only factor. It doesn't need to be the only factor to matter. Lots of things matter. Economics is a complex field.

[ashtonkem]

Right, so do you have any examples of rising productivity driving up wages for minimum wage jobs?

[ashtonkem]

> If a low skilled worker can produce 100$ an hour of value, and you're paying them 10$ and hour, someone else will very quickly be willing to pay them 11$, or 12$, etc.

You’re ignoring worker supply. If there are more workers than jobs available, wages will remain low regardless how productive they are. If there are few workers available the price of their labor will rise as employers try to outbid each other for the labor. Supply & demand for labor controls which side of the equation ends up in a bidding war for the other side.

The productivity of labor doesn’t set the price of labor, if that were true then labor saving devices would drive wages up, which they clearly do not. Rather it’s supply and demand that sets wages, with productivity setting the ceiling since few employers want to hire people at a loss.

[drran]

Yep, their OVERALL productivity, as part of the system, has dropped by 25%. Isn't that obvious? They are not spherical workers in vacuum, they are part of economic system. If you open a store in the middle of a desert, your overall productivity will be zero, regardless of your productivity in the store, because no buyers, no roads, no police, no electricity, no water, etc.

[mytailorisrich]

The productivity of a remote worker does not depend on their location, obviously.

If you WFH in NYC then move to Idaho while still working the same job then your productivity has not moved at all. If the employer tries to lower the salary it is simply because they think they can.

[drran]

Remote worker is part of remote economic system, so yes.

[ashtonkem]

This one stuck out to me, because I moved to Idaho.

It’s also not clear if a employer could cut such wages by 25%; that has less to do with CoL and more to do with the labor market. Or to use your formulation; do workers charge for their services according to the local cost of living, or do they charge for their labor what the market will bear?

[mytailorisrich]

Companies do pay the minimum amount they can get away with.

That said, lower paid jobs are also lower productivity jobs. There is obviously an upper limit to what a company is willing to pay that is based on productivity, and higher productivity also requires specialised skills.

No-one is going to be paid $100k to flip burgers at McDonald's both because that job does not produce anywhere near that and because it's easy to find people. If it became too difficult to find people salaries would not go very high because of the productivity cap and they'd find a way to do without people or shut down (because no-one is going to pay $100 for a Big Mac, either).

Now, they could pay a medical lawyer minimum wage if they could get away with. But the supply is quite small because it is highly skilled and productivity is very high, and so pay can be high and can remain high.