[chatmasta]

The problem is it's unsustainable. The employees aren't providing $70k of market value. The CEO is changing his pay to attract attention and build customers. Companies are not going to adopt paying 2x market salary as a standard business practice. If people will work for $40k then that's where the costs will "gravitate" (hah) to.

[dragonwriter]

> The problem is it's unsustainable. The employees aren't providing $70k of market value.

How do you know this? Sure, if you make the assumption that the before this one change, the world worked perfectly in line with the kind of simplifying assumptions that you might see in an Econ 101 class, then that would be true, but then, if the world worked that way, this raise wouldn't have happened.

[jeremyt]

Oh come on. I can't figure out whether you're feigning ignorance or whether you really didn't pay attention in Econ 101.

Basic economics certainly does not claim that every product will be sold at the equilibrium price. In fact, if that were so, then it wouldn't work.

In a free market, some products are sold above the equilibrium price, and some are sold below. It's free, because people can offer the product at any price they wish. What basic economics does say is that a price above equilibrium cannot be sustained without some corresponding market advantage.

[dragonwriter]

> I can't figure out whether you're feigning ignorance or whether you really didn't pay attention in Econ 101.

Actually, neither, I'm saying that the claim made by the post I was responding to doesn't work unless you assume that the general assumptions of Econ 101 and the conclusions drawn from it in terms of overall outcomes are assumed to apply not to overall outcomes but to every individual decision in the marketplace.

Which I agree is ridiculous, which was my point.

[svisser]

Companies do made decisions that cause them to go out of business later on. If this decision doesn't work out then somehow they must cut salaries, let go of people or go out of business.

[chatmasta]

Because they were willing to work for $40k.

[dragonwriter]

> Because they were willing to work for $40k.

That doesn't mean that they weren't providing $70k of market value, unless you assume that (at a minimum):

(1) they were maximimizing their pay in choice of job, and (2) they had perfect knowledge of all the alternatives jobs that they could otherwise have obtained.

These are the kind of assumptions that are typical in Econ 101, but to which real humans do not actually conform, particularly the second.

[dllthomas]

Ignoring a lot of caveats, that means that the labor they were providing was worth less than $40k to them. It says nothing about how much the labor was worth to the company. That the company was willing to pay them $40k says their labor was, with similar caveats, worth at least $40k but there is no implied upper bound.

[waterlesscloud]

If someone volunteers for a non-profit for no pay, does that mean they're providing $0 in value?

After all, they were willing to work for $0.

[emodendroket]

How long would they be willing to stay at that rate? Raises aren't entirely altruistic.

[invisible]

So you're saying that the CEO is providing $1 million in market value to the company? Maybe (and if we're being pessimistic maybe not) the CEO is doing this because he's already made $100 million and realizes it's the right thing to do. I think it's only unsustainable because of greed.