I think the right-wing backlash against him shows that they're not really so bothered by state intervention as they are ideologically opposed to a fairly paid society.
Everyone getting paid the same is communism, and yes massively de-motivating that if you work harder you get paid the same.
Massive pay disparity is the end result of unchecked capitalism, look at any country with low taxation, same result always.
Socialism just works to get a happy compromise where you have the chance of making more through your efforts, but less people get a huge head start and fewer fall through into poverty. I'm not sure what there really is to fear here.
The difference between America's mean and median wage is quite shocking (and the worst amongst developed countries I believe). Clearly we see that this is what the right want to hold onto at all costs.
This guy should be lauded and applauded for having the balls to do such an amazing social experiment which benefits all his employees.
Have I misunderstood?
Does everyone get the $70k so a software engineer is getting as much as a data entry or a receptionist?
And how much does it scale? Will it work when the company is forced to look into profit? Right now they seem to have revenue but no profits.
How will retaining employees work when someone who has to work over time to deal with bugs is getting paid as much as the person's job it is to hold meetings.
"right-wing backlash" - anyone who might suspect that this isn't sustainable and will probably end up going away in the long run. Sounds like a PR fluff piece.
Even dev salaries today isn't sustainable and will eventually crash.
I'm pretty conservative, but I don't object to him doing this in any way. I also highly doubt it will be sustainable. Unless all along he really was paying below market for the work his employees are doing.
I also have no disagreement with the notion that higher paid employees will be more productive (though I've certainly seen individual examples where the opposite is true) but that doesn't mean it's affordable for the business owner in all situations. If I were paid $70,000/yr to bag groceries I'd be productive as hell but I'd also bankrupt my employer.
If it does end up working for him and he's more profitable and has happier employees and customers, wonderful. I don't understand why any free-market person would object to that, as long as it's his business decision and he's not being forced to pay what he pays. Clearly a $70,000 minimum wage would not work for any and all employment situations.
I'm more libertarian leaning and agree with you. It's a private business doing what it wants with its money. I imagine it helps the business find the best employees up and down the chain and ends making people super loyal. Turnover can be a huge expense because the cost to hire and brain drain.
It's also in no way related to an actual minimum wage. Letting companies do it on their own like this one is what makes the higher wage work.
Over enthusiastic press without observing the effects of something like this years down the road absolutely affects the debate over minimum wage though.
The debate sure. But the reality of it is that right now this company has a competitive advantage because it is the only one or one of few that pay more than the others. It is likely swamped with resumes and can pick and choose the best of the best in nearly every position. If an actual minimum wage was mandated by the government at this level, the advantage falls apart and it likely no longer works.
It has a competitive advantage in hiring right now, absolutely. Whether that translates down the road to an overall sustainable competitive advantage for the overall business remains to be seen. Agreed on gov mandate.
I don't care how much or how little a company chooses to pay it's employees as long as they aren't using taxpayer money (or borrowed government money) to fund their business. And that goes for both business overpaying employees through some kind of subsidy, and paying such a low wage they can only attract workers who also receive welfare.
You might bankrupt your grocery store employer at 70k but I don't see why they can't double grocery store workers 2x (from close to min wage to closer to 40k yr). Fresh produce (and meats) come with high margins to offset waste. Aldi's and Costco come closer to a better model for their industry of grocery stores. Costco could improve it's value to employees if it went private like Aldi.
Sure higher value jobs require automation, which means their will be less jobs available but let's improve the quality of the existing jobs and figure out what we do, as a society, with all the unemployed.
I miss seeing the pride in workers eyes as they deliver me a product/service. Let's bring the pride back and figure out the rest later.
I feel that if we increase employment happiness, as a society we'd be better able to manage massive unemployment. Massive unemployment doesn't need to be a 'bad thing', labeled as 'lazy'. Instead, should be a pride thing in technology. Humanity doesn't need to work. Why must we force it to? We (humanity) can figure out how to manage the freedom of massive unemployment due to technology.
"Aldi (stylized as ALDI) is a leading global discount supermarket chain with over 10,000 stores in 18 countries, and an estimated turnover of more than €50bn."
We may have different definitions of what "small" is but I'd imagine most don't think 10k stores or €50bn turnover is "small".
My father dropped out of college because at the time, grocery stores paid good enough wages compared to other jobs that you could feasibly make a career out of it. That seems almost unheard of nowadays.
It's not about 70K minimum wage. It's about a more fair distribution of wealth. Why funnel profits towards shareholders or owners who usually do no work when all that extra wealth can be redeployed back to the people who actually run the business: employees.
Ironically what is unsustainable is not redistributing wealth towards labor. What is unsustainable is concentrating wealth towards a few people who contribute no work.
If being an owner is so low-effort and low-risk, why not just found a company instead of working for someone else?
It's because it's hard and risky work to start a company. Your observation of the company owner not doing any work is a temporal discrepancy not a difference in overall risk and effort (IMO).
I think he was referencing more shareholders and owners like Lucas (who was given "menial tasks"). Absentee owners is absolutely a common thing in all walks of business.
There's owners and then there's owners. With a publicly traded company 'owner' is any one with enough cash lying around to buy a share.
Then there's also owners who did a lot of hard risky work several decades ago, now insulated from that by layers of management, but don't contribute any more value to the company right-now than any project manager or warehouse supervisor.
Or ownership via nepotism which is a bit of a crap shoot. Sometimes sons and daughters work their ass off; some times they're just barely competent enough to not cause a revolt when given the keys.
In your second example, the company literally would not exist without the founder. If you divide up the "value" the act of creating a company provides over the lifespan of the company, it will likely eclipse the value a project manager or warehouse supervisor presently provides.
The company is the sum of it's parts: The employees. Employees exist without the founder or the company. Thus, the value still exists within the economy, it is just the distribution is different as said employees are producing value in other sectors of the economy.
When a founder forms a company he is not creating value. He is redeploying existing labor to do OTHER things. Whether that creates new value is a separate issue as said labor could create new value wherever it was before. Additionally, the founder is also creating a new corporate pyramid structure that funnels a lot of the redeployed wealth from this labor towards the people sitting on top: Whether that be himself or shareholders.
Let's say there are two companies. Company A and Company B. Company A is a established company and Company B is a startup. Lets also say there is one worker, named Chris. When Chris works for company A his work output is 20$ a day.
Let's say Chris changes his job and moves to company B. You're telling me that Company B by virtue of being a startup makes chris's work output suddenly equivalent to 100$? Tell me what magic makes this the case? What is it that makes it so new value is created out of thin air? It's not physically possible. In fact it's stupid to think that just by creating a startup you're creating value. You're just redeploying labor.
So where does new value come from if not just from a company by virtue of being a startup? The answer: When new technology or new innovations are created that fundamentally change the infrastructure of the economy so that it can be more efficient. It can happen from ANY company and it can even happen from government, it does not have to come from a startup. Examples: Apple: iphone, military: internet.
To tell you the truth, most startups amount to shit. If anything the majority of startups redeploy labor onto endeavors that amount to nothing. Usually big corporations more effectively redeploy labor. Could any random startup do what apple did to the phone industry? Probably, but waay less likely.
Your second paragraph is utter nonsense. A productive business absolutely creates value. History is littered with examples of entire brand new industries birthed by the sole creation of a single company. The pie literally grows larger. This doesn't create value?
By "existing labor" voluntarily "redeploying" themselves, they are in complete recognition of that fact and want to partake in the additional value created.
The parent poster completely altered his post after I responded to it so I would take that into mind when reading things. Also, throughout this thread I have never once mentioned anything about startups but assume away.
Nope. Parent Poster added to the explanation so you could be less ignorant. The second paragraph you referred to is still there, it is just expanded upon with more paragraphs for greater detail and clearer explanations. The reason this was done was because I reached my post limit. Not like anyone else is looking at this anymore anyway. I can move the additional explanations to the responding post if you want, as that's where I intended it to be at first.
I could've waited for the rate limiter to expire but I responded hastily because I was highly, highly offended by you saying that my paragraph was "utter nonsense." You don't say these kinds of things to people in real life. I'm not sure if your post qualifies for a flag but I do know really negative comments like that are frowned upon by the moderators.
You never once mentioned startups. That is true. But you do mention the creation of a company. You're telling me that the creation of a company isn't a startup? Ok I now assume that the creation of a company isn't a startup. You're talking exclusively about split-ups, as that's the only other time I know about where company creation occurs without the creation of a startup: http://www.investopedia.com/terms/s/split-up.asp.
If a company splits up. The old company is destroyed and the new companies are the sum of it's old parts. No new value is created. Understand? Or is my assumption incorrect? Clarify if i'm wrong about what you're referring to by "sole creation of a single company."
IMO, even the owner of a share of common stock is merely a one-for-one replacement of the person(s) who originally put up the capital and took the risk originally, so they get the same standing in my book.
If person A takes the risk, founds and grows the company and then sells their stake to person B, person B has purchased the claim that person A once held. If person A was entitled to the rewards for prior work without current effort, they can reasonably sell that claim to person B, whereupon B is entitled to those rewards (at the risk of the capital B put up).
In fact, being able to do so is critical to the current funding structure for many ventures (because it provides liquidity for person A, increasing the EV for A to originally start, because they can get liquidity later rather than having to hold the share for eternity to receive the value they created).
(I realize that not everyone will share this point of view, which is OK.)
risk taken 4 years ago is not worth the same as risk taken today. If they want to make it fair, share value should slowly bleed and be distributed to labor over time.
If a laborer can accrue shareholder value over time. Non laborers should lose it with time.
Right, this is your opinion, and I applaud it. Except it is a stark contrast to the backlash this company is getting from right wingers in general. Does the general conservative population actually support the free market or do they just support letting themselves be rich and their workers be poor?
>Unless all along he really was paying below market for the work his employees are doing.
Given that, as the article says, one actually complained to him about being ripped off on his salary, I'd say this was the case.
I agree with everything else you said. If an employer can afford to pay employees $70K and isn't coerced into doing so, more power to them. Such a salary isn't sustainable in all business. Market rate is most certainly not $70k/year to bag groceries.
Paying above average to reduce churn and establish long-term attitude towards career is not new, has been pioneered (or made mainstream in American industry, to be pedantic) by Henry Ford, and is now used by companies like Costco, In'n'Out Burger and variety of tech companies as a competitive advantage.
This is key. By paying better than other companies for equivalent roles (requiring anything above no skill and diligence) a company gains a competitive advantage since it can recruit and retain the best workers.
It is however usually coupled with the ability to let go poorly performing workers -- something that socialist aren't keen on.
I saw this in practice in the small town I grew up in that had 3 big supermarkets where the population could only really keep 2 going. Publix paid employees about a dollar an hour more than the other two (and would assume the same for management staff) and had very low tolerance for poor performance. So they always had the friendliest and helpful staff, cleanest stores, best stocked shelves, best kept meat and produce sections, etc. and was able to charge a higher price.
Once someone was fired from Publix, they would start working at one of the other two stores within the next week.
To be honest, what he did is completely fine with free market capitalism.
He had enough excess money so he choose to give higher salaries to all his employees. He does what he believes the right thing to do. Plus side, giving higher salaries usually has a positive effect on your job after all, as long as you can afford it. It seems to work for him and hopefully it will lead some others to do similar things.
But just by looking at this and universally forcing higher minimum wages may create unwanted consequences (Such as Lay offs, increase in un-documented exchanges or tax evasion simply because employers with already razor thin profits cannot afford salaries anymore.). Especially for small and medium sized companies.
If you're going to draw such sweeping conclusions about how obviously evil the right half the people in the country are, you should probably avoid doing it from third-hand reports on Slate. It's more than a wee bit probable they're stacking the deck.
Personally, I'd observe that if "he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties—including a $1.2 million home with a view of Puget Sound—and poured the $3 million he raised into Gravity." actually translates to "all that was necessary to fuel this", then it isn't exactly out of line to complain that a grand unsustainable stunt being used for the purpose of trying to force this on everybody else is a very silly thing to do, and has little to nothing to do with the problem of "wealth inequality". Everybody already knows that if it were possible to just pull wealth out of thin air everybody could have more. The problem is precisely that it isn't.
If it does turn out to be sustainable, then of course more power to him, but I'll wait for that judgment when the millions of dollars have run out and either have or have not been replaced by revenue. Seriously. I will in fact wait for that. Paying people well doesn't bother me, and I doubt it actually bothers anybody. But I'm certainly skeptical in a way that, say, a report from left-wing Slate about how this didn't work would leave me less skeptical, because they'd clearly be reporting it against their will, and probably have examined it within an inch of its life.
And even through what I would consider substantial bias, the article's own text leaves a lot of room to be concerned about this maneuver. He's basically spending almost the entire profit of the firm on salary, then promising not to lay anybody off or cut salaries even if times turn bad. Well... guess what that translates to... if the company hits problems, he'll end up going out of business and these people will suddenly not have their jobs at all. Or his glittering promises that you're so excited about will turn out to only have been words. Or something that does not involve everybody keeping their jobs at way above-market pay in a company that can't make payroll.
He's welcome to do this experiment, but maybe we should all wait to make sure it succeeds before getting too excited about it, and demanding that anyone who thinks it likely to fail consider themselves bad people who should feel bad. All the best to him (again, no sarcasm at all), but the most likely outcome is that he goes out of business in the next recession.
A company has a finite amount of money to spend on payroll. The less you can get away with paying the low and middle level employees, the more you free up for the higher level employees. Part of the reason high-end salaries have increased so much is because low-end salaries haven't significantly increased at all.
An experiment that drastically raises low-end salaries can therefore be viewed as a big threat to those whose wealth depends on being able to get away with paying their employees low wages.
We can all argue endlessly about what constitutes a low wage, to what degree we should let the market decide, etc, etc - but the idea that "If there was more money available, we'd happily use it to raise entry-level wages instead of giving it to the top-tier employees" is demonstrably false. This is why this has everything to do with wealth equality.
I have no idea what your reply has to do with me. I never even remotely made that claim. Were you so sure you knew what I was going to say that you didn't bother to read what I actually did say?
A solution that can't be sustained isn't a solution. It is a category error to treat it as a solution merely because you like it, or it flatters your politics, or it makes you feel good, or it provides you a cudgel with which to hit your political opponents. None of those things will prevent the company from going out of business, if it does, and then nobody has a job.
> Paying people well doesn't bother me, and I doubt it actually bothers anybody.
To which I pointed out that it might well bother some groups of people.
You also asserted that:
> ... has little to nothing to do with the problem of "wealth inequality". Everybody already knows that if it were possible to just pull wealth out of thin air everybody could have more.
To which I pointed out that it does in my opinion have everything to do with wealth equality, sustainable or no, as this experiment is (IMO) primarily about where and how payroll gets distributed, not about how large payroll might be.
I read your post carefully, several times, before replying. Please do mine the same courtesy. Thanks.
>in my opinion have everything to do with wealth equality, __sustainable or no__, as this experiment
[The __emphasis__ was mine].
jerf was saying that determining if "wealth equality" can be a solved problem depends on whether Gravity's strategy is sustainable and a ultimately proven as a success. jerf is looking beyond the salaries experiment and current media hoopla.
jfindley is saying that the mere existence of the experiment without consideration of whether it succeeds is itself a conversation about "wealth inequality".
Exactly. I'm looking at this as a massive experiment and will wait to see the results.
On one note, there's a reason that some roles are paid $40k instead of $70k and it has nothing to do with the value of the person. It's that the role doesn't create enough value - sales, retention, growth - to make that make sense. It's feasible to make an employee a few percent more effective but nearly 2x? I'd love to see that.
On the other side, I'd love to know why the the sudden influx of cash. Was it just to get rid of his assets? (a divorce?) Or did the company need the cash? If they needed it and business was good, why not outside investors? If they needed it and business is poor, then he's just doomed his whole cause because of the "see, I told you so!"
Regardless, I'm looking forward to seeing what this looks like longer term.
> Everybody already knows that if it were possible to just pull wealth out of thin air everybody could have more. The problem is precisely that it isn't.
But he didn't pull wealth out of thin air to do this, he reinvested existing wealth back into his business.
While not every business can do this, there are arguably plenty that can. Over the past 10 years, corporate profits are up and so are executive salaries, compared to medium income.
So it's not that people wish that wealth could be create out of thin air. It's that wealth is being created, it's just being distributed differently.
I think the most insightful comment from Dan was that he realized he was still managing his business in crisis mode, hoarding cash in case another huge financial meltdown hit--but that was unintentionally impeding his business growth by harming his workforce.
This arguably describes thinking of a lot of business executives, who are hoarding cash both personally and in the businesses they lead. It's possible that this is one reason we are seeing less than stellar economic growth right now.
Everyone getting paid the same is communism is only communism when the government forces this on everyone with laws. Some guy saying to himself "hey, I've got lots of money, I'm gonna pay everyone more" is the freest of capitalism even if (especially if) he chooses to pay them "unfairly" and is able to do so despite the objections of others. His money, his way.
Anyone who disagrees is still free to use their own money to pay their own employees peanuts from their mega-yacht.
> they are ideologically opposed to a fairly paid society.
The problem is that there isn't one universal definition of fair. Conservatives, liberals, libertarians, socialists, they generally all (with individual exceptions of course) want a society that is fair, but with different, mutually incompatible definitions of fair.
Conservatives tend to preach that in a fair society, everyone gets what they deserve. Harder working, more talented? Then you deserve more. Socialists tend to preach that in a fair society, everyone gets what they need.
The group who need the most doesn't overlap with the group who is most talented and able to work hard, so conservatives and socialists will never agree on what is fair, or even that the other group believes in fairness.
The definition of fairness is subject to research under the name equity theory [0]
The three extremes are (AFAIR):
- equal distribution
- distribution proportional to contribution
- distribution proportional to need
The problem with extreme 1 and 3 is that they provide no incentive to increase your contribution which is why "capitalism" is superior to "socialism" in terms of productivity.
The current system isn't perfect but in a market economy, new entrants challenge incumbents with systems that better tap the talents of the labor pool.
You are free to design your own incentive system and compete with those you believe rely too much on rank.
> The problem with extreme 1 and 3 is that they provide no incentive to increase your contribution which is why "capitalism" is superior to "socialism" in terms of productivity.
That may be true under normal circumstances (you will likely see overall productivity drop once the poor start to starve or freeze to death) but that still leaves the fundamental disagreement whether overall productivity is more important than meeting everyone's needs.
What they want at that time is food and fuel. If your children are starving, and someone else's aren't, any belief in fairness collapses. Crime and revolution are the result.
Global shift from centrally controlled economies to more free market economies -> fewer people that are poor -> fewer people that are starving or freezing to death
I get the impression that you have strong ideals, and that you need me to agree that the other side isn't just wrong, but (quoting my own post higher up):
> will never agree (...) that the other group believes in fairness.
This is how a political gridlock develops, how wars start. Who is going to negotiate with a side that doesn't even want to be fair? I know I wouldn't, it would be pointless.
If you guys want to play the definition game, then we need to have an honest discussion on the definition of "contribution" and "deserve".
Gold is rarer, than oxygen and carbon. The market prices it higher. Does that mean it contributes more? Is gold more important than oxygen and carbon?
Sure, there needs to be an incentive to work hard. But there shouldn't be an incentive to being born in the lucky circumstances that leads you to becoming a surgeon, or the even luckier and more exclusive circumstances that lead you to becoming a CEO (white, male, relatively privileged). And why does a CEO who works hard 80 hours a week deserve more than a janitor working 3 jobs 80 hours a week just to keep her family afloat, to get her kid enough food and a safe place and help her get through the crappy public school that the CEO pays $30-60k a year (multiples of the janitor's salary) to keep his kid out of?
There shouldn't be an incentive to treat people as commodities. Does a surgeon deserve twice as much if for whatever reason there are half the number of surgeons this decade compared to last? Does a janitor deserve half the pay just because the birthrate increased and there are twice as many people to compete against? (I'm simplifying. It's not important whether doubling the supply halves the price.)
> Socialism just works to get a happy compromise where you have the chance of making more through your efforts, but less people get a huge head start and fewer fall through into poverty
That, or leads to a repressive state and economic ruin. You can't pretend that Denmark is socialist but not many of the failed South American countries.
Paul Graham has an interesting perspective of inequality:
> Economic inequality is not just a consequence of startups. It's the engine that drives them, in the same way a fall of water drives a water mill. People start startups in the hope of becoming much richer than they were before. And if your society tries to prevent anyone from being much richer than anyone else, it will also prevent one person from being much richer at t2 than t1.
He acknowledges that people don't do things just for financial reward. People build products because they love building things. The things you have to pay founders for is doing the mundane operational support that is required for most projects. No one likes doing that.
He goes on to argue that inequality is the result of people being able to more effectively use their talents. The "10x programmer" isn't paid 10x as much, but few programmers could argue that he should not get paid a lot more than just an average programmer despite being much more effective.
I get that inequality is distasteful, but I would rather be richer in a less equal economy that be poorer but average.
> I would rather be richer in a less equal economy that be poorer but average.
there's no debate that anyone would choose to be the richer one in any situation. The question is whether you'd rather be the poorer one in a less equal economy, or the poorer one in a more equal economy.
The CIA had a lot to do with that. It instigated coups against democratically elected heads of state and supported repressive dictators in most of South America in order to protect American businesses there.
I'm not so sure this should be applauded. He mortgaged his house, emptied his retirement accounts, and sold all his stock, to what? Make a statement? It just seems reckless to me.
I'm reading a lot of accounts of this but as far as I'm aware it's just random anecdotes of some idiot foaming at the mouth on Fox. People may think this guy is an idiot but no one is saying he can't do what he has done.
Why does "pay disparity" or income inequality matter?
Suppose two people start at 10. One person finds a way to go to 20 and the other goes to 11. The inequality has increased and the wealth of both people has increased.
Technically, this is a social improvement. But egalitarians would say this is a terrible situation because the gap has gone from 0 to 9.
A disparity of 2X wealth or income isn't what people are upset about-- try 30-100X or larger. Then there's also the real problem of the person with 10 dollars ending up with 7 instead of 11.
Strongly agree; the "just world fallacy" types are frequently right-wing. Seeing a disruption of inequality is offensive to them because they view it as a refutation of the social Darwinism they worship at the church of capitalism.
It doesn't matter if the right wingers are poor or struggling themselves: rather than envisioning a world in which they don't have to struggle as hard, they envision a world in which they have broken beyond their struggle somehow and are now being bled by the "taker" leeches as a result of left wing political goals being met. The sad side of this is that many of these people have zero chance of breaking beyond their struggle specifically because there is not wider political support for redistributing resources.
The fall into poverty is an act of justice in this perverse mindset. Poverty is the result of bad choices of the individual in their view. Of course we can dismiss this kind of simplification as childish (the result of an intentionally crafted propaganda campaign designed to cause people to vote against their interests), but there are millions of people who will have hateful fire in their eyes if you deny that poverty is avoidable for any person with the proper magical choices.
Your comment about right-wing backlash is not documented in most publications and falsely directed at a group to reinforce your group-think against them. The only critique I could find was Rush Limbaugh saying it was “I hope this company is a case study in MBA programs on how socialism does not work, because it's gonna fail,”, although this is not a backlash in suggesting that it should be boycotted, so if you have others it would be appreciated. Rush Limbaugh is incorrect as the community does not own the company i.e. socialism, but to be fair, there is no theory on what to call this politically; it is not communism, socialism, or any other -ism. Those in the Seattle [2] Times article suggesting "backlash" point to companies behaving rationally in the market expecting fee increases in the future. The alleged companies quitting usage based on political concerns is not given to a number and without direct quotes from the companies as to the reason for quitting, I find it simply a buffer for the story. An Entrepreneur critique piece specifically mentions no ill-will to the company. [3]
The criticism, mostly originating from Austrian based economic thought not right-wing groups (however most individuals on the right subscribe to the Austrian thought), was that the economics of the $70,000 wage was not going to end well for the company, not any suggestion of opposition to fairly paid society.
Comments varied between what the profit margin would be and the effect on role distinction. The main comments were how the effect would play out for those employees that the company had previously valued at $75,000 with a double pay differential from the $35,000 now having the individuals who performed the same task being given the $50,000 wage and phased up to the $70,000; eliminating the meritocracy of a $75,000 wage. Additionally, the internal machinations and reports bore out the Austrian point of view as valued employees quit citing unequal pay raise values for the lowest valued employees. [1]
To be fair, MarketWatch and Slate bring up a doubling in profits and revenues, but how much of this is based on an increase from the publicity and is it a long term sustainable idea.
Gravity Payments is profiting $2.2 million on $150 million in revenue. The Seattle Times article notes that payment processing services are razor thin margins.
Let's do the following financial analysis:
* Gravity Payments has a 1.5% profit margin at its current rate of burn, $2.2 million over $150 million.
* Gravity at announcement time had 120 employees, of which a documented 25% would see a double in their pay, 30 employees who were making $35,000. Estimating the rest of the company's effected staff, estimate another 30 will be brought up to $50,000, another 20 brought up next year to $60,000 and then finally another 20 to $70,000, for a total of estimated 100 employees affected by this move.
* Costs have now increased for the 30 base salary employees to $1.5 million more, assuming a cost increase of $20,000 per person average for the remaining group of 70, you are an additional $1.4 million.
* After the full effect of the increase is factored in, the costs outweigh the current operating situation.
* The counter-argument of increases in business are offset by the companies need to hire additional staff to handle the increase. These individuals are brought into the existing cost structure and are not able to move the profit margin.
The company will be having some issues next year making good on its promise of wage increases and certainly in 2017. This basic analysis is why the finance person quit, she saw what I am showing.
Yeah I've submitted a few articles only for them to fall off the 'new' section, then later that day almost identical URLs have reached the front page. With all these smart people about surely someone can write a de-dup detector for articles (and I don't mean URL comparison).
There seems to be some sentiment that it is a good thing that duplicates are posted if they eventually gain attention. Perhaps it would assuage the irritation of the initial posters (which I have often felt) if the dup detector awarded karma points to both the duplicate that caught everyone's attention as well as the previous (recent-ish) duplicates.
Dang said this is intentional, to allow stories which didn't receive much attention the first time another chance to be viewed. I, for one, appreciate this, since I did not see this article the first time around.
A lot of people don't like dupes because they feel that karma for posting a story should go to the first person to post it. To them, it seems unfair to post a story and get no karma points, and then someone else posts (reposts?) it a day later and gets hundreds of karma points.
Personally, my opinion is that since karma points are made up and worthless, it doesn't matter. Allowing dupes makes it more likely that cool stories will hit the front page, at the cost of annoying a few people. Seems like a good tradeoff to me.
People should be happy that an article they deem good made it, not that they got the karma for it because they were first. Being first is luck, not merit. Most importantly, the thing we want to "win" around here are good articles and discussions, not individuals. (Which is ironic, given it is a rather socialist attitude in a capitalist-dominated community culture.)
In any case, in the long run it all averages out. The likelihood that this works for you is just as high as it is against you.
This is in the FAQ. A story doesn't count as a duplicate unless it has had significant attention in the last year. Otherwise far too many good stories languish unnoticed.
This quote strikes me most:
"Here I am walking around making $1 million a year, and I'm working shoulder to shoulder with people in her situation who are every bit as good and valuable as I am."
I wish more people would realize that those earning less than themselves are not necessarily less deserving but merely less valuable in a marketed job force.
Except those other people are not risking their assets to create that employment opportunity. Most entreprenurial undertakings fail. The high reward for the ones that succeed is the carrot that entices people to take those risks and create the opportunity for a lot of other people to earn a more modest reward but for far less personal risk.
Surely, personal circumstances are very important if you are going to try to start a business.
There is psychological circumstances like: did you grow up in a family or an environment where the idea of start a business was present?
And more practical like:
Do you have technical abilities that you can sell if your project fail?
Do you or your parents, wife, etc. have money that will stop your fall if the project goes wrong?
Was really Bezos or Gates or Page really "taking a risk"?
And I mean a real risk.
Anyway, even if we, as a society, want to reward the "job creators", we probably don't want to live in winner take all world.
Half of all small business fail in the first 3 to 5 years. Imagine taking a job where you had to pay for your office, office supplies, computer, and every thing else out of pocket. And oh yeah, half the people are fired within 3 to 5 years without being reimbursed for their expenses. While some people have more resources or come from a more privileged background that is a social discussion. It's still pretty risky in terms of cash, assets, and time no matter who you are.
>Half of all small business fail in the first 3 to 5 years.
I'm curious about that statistic. A lot of these business could be hobby or other casual enterprises, tax avoidance schemes, and doomed businesses started by naive people. It doesn't mean a whole lot without some more context.
>Imagine taking a job where you had to pay for your office, office supplies, computer, and every thing else out of pocket.
Become a teacher!
>...that is a social discussion.
Social factors aren't irrelevant. People behave differently based upon socio-economic incentives. Not just entrepreneurs, either; take two engineers, one comes from a family with "fuck you" money, the other is a first generation college graduate. They both have started their own families and have young children at home. Now, imagine how their reactions might differ when placed in various ethical dilemmas.
> I'm curious about that statistic. A lot of these business could be hobby or other casual enterprises, tax avoidance schemes, and doomed businesses started by naive people. It doesn't mean a whole lot without some more context.
All models are wrong, but some are useful. That particular stat covers a pretty good cross section of legitimate small businesses. Some small businesses may be a cover for an underground marinara sauce operation used by the mafia to funnel dollars to a dog fighting operation..... Sure we could muddy it up more, but I don't think that stat is all that malicious or disingenuous.
> Become a teacher!
This claim does seem to be a bit disingenuous and exaggerated. Sure teachers cover an unfair amount of supplies and get paid very little. Do they really rent their classrooms, buy their own computers, and pay for 100% of everything out of pocket?
> Social factors aren't irrelevant.
My post was refuting the claim that entrepreneurs aren't taking real risk. Granted if you come from a wealthy family you aren't taking as much risk starting a business as someone taking a small business loan. I still contend that the risk to an individual (relative to them-self, not others) is greater when starting a business than taking a job.
>This claim does seem to be a bit disingenuous and exaggerated. Sure teachers cover an unfair amount of supplies and get paid very little. Do they really rent their classrooms, buy their own computers, and pay for 100% of everything out of pocket?
It was exaggerated a bit!
>Do they really rent their classrooms,
Of course not, but increasingly, my own resources are being put to use on behalf of my / my employer's students. Furthermore, remuneration in my field is easily several times what it is in education; and I think that's true for a lot of teachers. Sure, there are other benefits, but the pay is poor, approaching minimal, and that's not going to get you the best teachers.
I think we went of the tracks a few posts ago. I was saying that entrepreneurs take significant personal and financial risks and there is a high rate of attrition for even good businesses. My point was that after a physically, emotionally, and financial draining 5 year period there is a high probability that you end up with significant debt and no source of income (lol kind of like my college experience I guess). I know that teachers get crapped on and are underpaid. I get that it's unfair and it sucks.
Yeah, I probably should have used /s after that line.
> I was saying that entrepreneurs take significant personal and financial risks and there is a high rate of attrition for even good businesses.
I agree, and I think it's may just be a nasty feature of our country's demographics and the law of supply and demand.
I'm reminded of a post from a few years ago (I think I saw it here) examining someone's observation that a lot of engineering types were packing up and moving to Germany to start their company because failure would mean less financial hardship (that's not a great summary of the article). Here is an article in a similar vein (vane?). http://www.theatlantic.com/business/archive/2012/10/think-we...
Most business owners are risking very little out-of-pocket money. Most are either funded via business loans against the business assets, or from investors.
Only a small number of bootstrapped companies (few of whom are represented on Hacker News) are risking their own money, and even then only the brave (or foolish) push it to the point where they can't sustain themselves if the business fails.
Don't forget about opportunity cost. It's common to discount opportunity cost and equity as "not as real as the money you spend on your credit card". However when the house payment keeps showing up every month and you decided to strike out on your own instead of taking that $6000 to $10000 per month you could have made in a stable software development job you are going out of pocket whether you realize it or not. That $300k you missed out on because you failed to cover expenses for 4 years when you could have been working as a software dev in some employers cubicle are real dollars.
Also some business owners do leverage some retirement savings when starting a business. It's a pretty good way to get low interest money. They can sustain if things fail, but they certainly feel it if they fail.
A massive number of people are making big salaries that have risked absolutely none of their assets. Then when they suck, not only did they not risk or lose anything materially, they'll get huge severance checks.
And if you require a carrot that takes you from, say, $2M to $2.5M salary, maybe re-consider what motivates you and try to find something more intrinsic to the work & company itself.
>And if you require a carrot that takes you from, say, $2M to $2.5M salary, maybe re-consider what motivates you and try to find something more intrinsic to the work & company itself.
Who are you to tell someone their motivations are wrong? I agree with you for myself wholeheartedly but I'm not about to go dictate to people what they should be motivated by. How incredibly arrogant.
First of all, there is not "far less personal risk" for employees. If the company you work for goes under, every employee is hurt by that, not just the founder.
The founder may have lost more money, but he had more money to gamble with. The employee does not, and losing his personal income stream is probably equally or more damaging to him.
So I'm a small business founder who had to take out a bank loan, mortgage the house, and forego a salary until business is good. That's somehow less risky than a standard employee who can likely walk away with no baggage after the business shutters?
Not everyone that starts a business is wealthy. They have take on debt or sold equity to finance their venture. They may have much less money in the bank than their employees. If you're financing your business with your retirement from a previous job or from personal savings you have much more at stake than lets say, a software dev that is getting non stop calls from recruiters for high 5 or 6 figure jobs that start tomorrow. Full disclosure, I'm the second guy who wishes I had the risk appetite to be the first guy.
Equity in their business? You can create vtlynch LLC tomorrow if you wanted to and if you found someone to buy it, you could sell equity in it. What does that have to do with personal wealth?
That's exactly how I read it. Taking on debt or selling equity are some of the most common ways of financing businesses. I could see if "take on debt" was not in that sentence but even then many (non-VC funded too!) businesses sell ownership in their business to finance it.
You can sell equity to anyone interested in buying it. Does your friends lower middle class uncle that retired from that factory job at Chrysler ten years ago have an extra 20 grand? You can sell him a chunk. You can't hold yourself out to the general public, but you can sell shares if that's what you want to do. There is a very real concept called cost of equity. It's a percentage comparable to loan interest. It's often much higher than the cost of taking a loan if your company is successful.
I think what he is doing is pretty cool. Remember however that although he may be working with people every bit as smart and productive as he is, starting a business is massively risky. I believe in 3-5 years it amounts to a coin flip. He is earning a risk premium. If you buy a risk free US Treasury Bond you expect to earn (much) less yield than the dividends on a share of Exxon or Apple.
He is an entrepreneur/founder. He isn't just a company hopping CEO with soft landings and golden parachutes galore. I think an entrepreneur deserves a solid risk premium.
That could very well be. That article does mention that he was nearly wiped out by the great recession in 2008. At one point he was putting it all on the line and the risk was very real. I think you are probably right in saying that the risk premium may change over time. I guess I don't know how much that reward should be and how long it should pay off for.
When comparing stocks and bonds you use the risk free interest rate and take a stocks volatility compared to the broad market into account. Maybe the volatility of the business should be a consideration.
I had a similar conversation with my wife the other day. Before the kids, she was an elderly care attendant, providing care for the elderly folks who are in their sunset years of their lives, and I worked in tech. Although my salary is not high, it is still about 5x of hers. I feel rather embarrass during my discussion as I feel that she is contributing a lot more to people lives than I am, the essential services. The stuff that I make would not make much difference in everyday life if it did not exists.
I hesitate to disagree. But ... the value of services can be easily calculated because they are so visible. Every interaction has an emotional link, and we count that highly.
The value to 'society' of improving a toaster by a small percentage, or the hits to a website by a larger one, are hard to calculate except by a bottom line. Any emotional impact is so indirect as to be invisible. Still exist; but we don't see them so can't count them.
Add to this: one-on-one services are limited by the time and attention one person can put into them - two hands, one heart, 24 hours in a day. Absolutely no leverage at all, in the economic sense. Exceeding that (admittedly large and important) impact happens at some point in less-direct exchanges (economic, technological) and can go up from there geometrically.
So I console myself, as a technician, that what I do affects those unseen people. And if successful, it affects millions, not just tens. It adds up to something important too.
I wouldn't feel too guilty about "value". In a world of finite resources with alternative uses, your value (how much you are paid) is often your share of how much revenue you help generate. Value (pay) and value (worth) are not the same thing. Why does a pro athlete make 10 mil and a 3rd grade teacher make 30k? Because more tangible revenue is generated by a single pro athlete than a single 3rd grade teacher in a given year. It sucks, but hating it or feeling guilty about it doesn't change it.
That may have a component to unequal pay, but I think trying to paint it as the whole picture (or even the major part) isn't quite fair.
I'd argue the huge pay differentials are often because humans are TERRIBLE at judging long term... anything. A pro athlete can fill a stadium at some $$ per seat, yes. If a pro athlete stops playing, what happens? the stadium stops filling as much, we potentially lose some ancillary jobs from decreased viewing population (but given the number of sports stars and the nature of teams, losing one outside of a very few likely won't cause much), but in the long term, what is the cost?
Now let's remove an equal number of teachers as could be paid with that single salary. Even if this is a low end athlete, given teacher pay, you're losing dozen/few dozen teachers. What is the long term cost to students who can no longer be educated, or get a much poorer education (or simply now have far bigger classes)?
I realize there are many holes in this argument as it asserts a lot about how money is distrbuted/what externalities exist, but I see it as one facet.
There are also the more well explored aspects of "we like to lionize celebrity/success" and "teachers don't have much political or social clout given their resources/our prioritization in society" (although this links back to my prior statements about long term value and society preferences.)
In summary, I think there's plenty of reason to hate/feel guilt about it, and work to change it. Yes, the feelings alone do nothing, but if no one is getting angry then certainly nothing will ever change.
I 100% agree. People are terrible at judging long term non tangible value. That's mainly because it's hard to quantify on a balance sheet. That's why I put the 1 pro athlete vs 1 teacher for 1 year stipulation on it.
A star performer's pay is possible because millions of people can enjoy his/her performance at the same time, paying a relatively small amount of money (say, $80/ticket).
The software that the poster above developed can potentially be sold to a lot of customers with no extra work, so he makes an above average salary.
A teacher cannot teach millions of people at the same time, the limit is usually set at 20-25 students.
A care-provider can only take care of one person at a time, a few during the day.
Yeah, but this is just the classic Diamond-Water Paradox in Economics (https://en.wikipedia.org/wiki/Paradox_of_value). Value isn't assigned based on essentiality, it's based on the intersection of supply and demand.
Perhaps, but a natural effect of the way that capitalist economies work is that contributions aren't valued by social utility in a fair sense, but by utility weighted by the wealth of the people to whom that utility is provided.
Six months after Price's announcement, Gravity has defied doubters. Revenue is growing at double the previous rate. Profits have also doubled. Gravity did lose a few customers: Some objected to what seemed like a political statement that put pressure on them to raise their own wages; others feared price hikes or service cutbacks. But media reports suggesting that panicked customers were fleeing have proved false. In fact, Gravity's customer retention rate rose from 91 to 95 percent in the second quarter. Only two employees quit—a nonevent. Jason Haley isn't one of them. He is still an employee, and a better paid one.
Yes, but does everyone in his company hold the same position? As I look around my office space at the many different positions, $70,000 (roughly $38,000 adjusted for cost of living differences) starting would be on par for some building staff, low-balling for some business staff, laughably low for the dev staff (but worth it with good benefits and some desperation), and a flat out no for some other positions.
$38k is the median average in my area, but tech is in its infancy here. If this place does have the tech boom that so many are pushing for, then the median average (based on current market rates) is going to shift upwards by a nice chunk of change. As such, it would seem as if other industries are being underpaid if the only metric is median income.
Listen, I love me some good ole fashioned hate-filled ignorance just as much as the next American, but whoa nelly. You're making some crazy assumptions about the ethnicity and lifestyles of people based solely on what they look like and that's pretty fucking racist.
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[ 2.7 ms ] story [ 175 ms ] threadEveryone getting paid the same is communism, and yes massively de-motivating that if you work harder you get paid the same. Massive pay disparity is the end result of unchecked capitalism, look at any country with low taxation, same result always. Socialism just works to get a happy compromise where you have the chance of making more through your efforts, but less people get a huge head start and fewer fall through into poverty. I'm not sure what there really is to fear here.
The difference between America's mean and median wage is quite shocking (and the worst amongst developed countries I believe). Clearly we see that this is what the right want to hold onto at all costs.
This guy should be lauded and applauded for having the balls to do such an amazing social experiment which benefits all his employees.
And how much does it scale? Will it work when the company is forced to look into profit? Right now they seem to have revenue but no profits.
How will retaining employees work when someone who has to work over time to deal with bugs is getting paid as much as the person's job it is to hold meetings.
"right-wing backlash" - anyone who might suspect that this isn't sustainable and will probably end up going away in the long run. Sounds like a PR fluff piece.
Even dev salaries today isn't sustainable and will eventually crash.
You indeed have. $70k is the minimum salary. It is possible to make more.
I understand in this situation, that some of the previously higher paid employees got upset [and left].
> Only two employees quit—a nonevent.
I also have no disagreement with the notion that higher paid employees will be more productive (though I've certainly seen individual examples where the opposite is true) but that doesn't mean it's affordable for the business owner in all situations. If I were paid $70,000/yr to bag groceries I'd be productive as hell but I'd also bankrupt my employer.
If it does end up working for him and he's more profitable and has happier employees and customers, wonderful. I don't understand why any free-market person would object to that, as long as it's his business decision and he's not being forced to pay what he pays. Clearly a $70,000 minimum wage would not work for any and all employment situations.
It's also in no way related to an actual minimum wage. Letting companies do it on their own like this one is what makes the higher wage work.
Sure higher value jobs require automation, which means their will be less jobs available but let's improve the quality of the existing jobs and figure out what we do, as a society, with all the unemployed.
I miss seeing the pride in workers eyes as they deliver me a product/service. Let's bring the pride back and figure out the rest later.
I feel that if we increase employment happiness, as a society we'd be better able to manage massive unemployment. Massive unemployment doesn't need to be a 'bad thing', labeled as 'lazy'. Instead, should be a pride thing in technology. Humanity doesn't need to work. Why must we force it to? We (humanity) can figure out how to manage the freedom of massive unemployment due to technology.
"Aldi (stylized as ALDI) is a leading global discount supermarket chain with over 10,000 stores in 18 countries, and an estimated turnover of more than €50bn."
We may have different definitions of what "small" is but I'd imagine most don't think 10k stores or €50bn turnover is "small".
Ironically what is unsustainable is not redistributing wealth towards labor. What is unsustainable is concentrating wealth towards a few people who contribute no work.
It's because it's hard and risky work to start a company. Your observation of the company owner not doing any work is a temporal discrepancy not a difference in overall risk and effort (IMO).
Then there's also owners who did a lot of hard risky work several decades ago, now insulated from that by layers of management, but don't contribute any more value to the company right-now than any project manager or warehouse supervisor.
Or ownership via nepotism which is a bit of a crap shoot. Sometimes sons and daughters work their ass off; some times they're just barely competent enough to not cause a revolt when given the keys.
When a founder forms a company he is not creating value. He is redeploying existing labor to do OTHER things. Whether that creates new value is a separate issue as said labor could create new value wherever it was before. Additionally, the founder is also creating a new corporate pyramid structure that funnels a lot of the redeployed wealth from this labor towards the people sitting on top: Whether that be himself or shareholders.
Let's say there are two companies. Company A and Company B. Company A is a established company and Company B is a startup. Lets also say there is one worker, named Chris. When Chris works for company A his work output is 20$ a day.
Let's say Chris changes his job and moves to company B. You're telling me that Company B by virtue of being a startup makes chris's work output suddenly equivalent to 100$? Tell me what magic makes this the case? What is it that makes it so new value is created out of thin air? It's not physically possible. In fact it's stupid to think that just by creating a startup you're creating value. You're just redeploying labor.
So where does new value come from if not just from a company by virtue of being a startup? The answer: When new technology or new innovations are created that fundamentally change the infrastructure of the economy so that it can be more efficient. It can happen from ANY company and it can even happen from government, it does not have to come from a startup. Examples: Apple: iphone, military: internet.
To tell you the truth, most startups amount to shit. If anything the majority of startups redeploy labor onto endeavors that amount to nothing. Usually big corporations more effectively redeploy labor. Could any random startup do what apple did to the phone industry? Probably, but waay less likely.
By "existing labor" voluntarily "redeploying" themselves, they are in complete recognition of that fact and want to partake in the additional value created.
What may appear as "utter nonsense" is actually deeper understanding. Real knowledge is to know the extent of one's ignorance.
shhh, you will upset the Founders are gods and we should worship at their Startup temples viewpoint that is the foundation of HN.
I could've waited for the rate limiter to expire but I responded hastily because I was highly, highly offended by you saying that my paragraph was "utter nonsense." You don't say these kinds of things to people in real life. I'm not sure if your post qualifies for a flag but I do know really negative comments like that are frowned upon by the moderators.
You never once mentioned startups. That is true. But you do mention the creation of a company. You're telling me that the creation of a company isn't a startup? Ok I now assume that the creation of a company isn't a startup. You're talking exclusively about split-ups, as that's the only other time I know about where company creation occurs without the creation of a startup: http://www.investopedia.com/terms/s/split-up.asp.
If a company splits up. The old company is destroyed and the new companies are the sum of it's old parts. No new value is created. Understand? Or is my assumption incorrect? Clarify if i'm wrong about what you're referring to by "sole creation of a single company."
If person A takes the risk, founds and grows the company and then sells their stake to person B, person B has purchased the claim that person A once held. If person A was entitled to the rewards for prior work without current effort, they can reasonably sell that claim to person B, whereupon B is entitled to those rewards (at the risk of the capital B put up).
In fact, being able to do so is critical to the current funding structure for many ventures (because it provides liquidity for person A, increasing the EV for A to originally start, because they can get liquidity later rather than having to hold the share for eternity to receive the value they created).
(I realize that not everyone will share this point of view, which is OK.)
If a laborer can accrue shareholder value over time. Non laborers should lose it with time.
Given that, as the article says, one actually complained to him about being ripped off on his salary, I'd say this was the case.
I agree with everything else you said. If an employer can afford to pay employees $70K and isn't coerced into doing so, more power to them. Such a salary isn't sustainable in all business. Market rate is most certainly not $70k/year to bag groceries.
It is however usually coupled with the ability to let go poorly performing workers -- something that socialist aren't keen on.
Once someone was fired from Publix, they would start working at one of the other two stores within the next week.
He had enough excess money so he choose to give higher salaries to all his employees. He does what he believes the right thing to do. Plus side, giving higher salaries usually has a positive effect on your job after all, as long as you can afford it. It seems to work for him and hopefully it will lead some others to do similar things.
But just by looking at this and universally forcing higher minimum wages may create unwanted consequences (Such as Lay offs, increase in un-documented exchanges or tax evasion simply because employers with already razor thin profits cannot afford salaries anymore.). Especially for small and medium sized companies.
Personally, I'd observe that if "he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties—including a $1.2 million home with a view of Puget Sound—and poured the $3 million he raised into Gravity." actually translates to "all that was necessary to fuel this", then it isn't exactly out of line to complain that a grand unsustainable stunt being used for the purpose of trying to force this on everybody else is a very silly thing to do, and has little to nothing to do with the problem of "wealth inequality". Everybody already knows that if it were possible to just pull wealth out of thin air everybody could have more. The problem is precisely that it isn't.
If it does turn out to be sustainable, then of course more power to him, but I'll wait for that judgment when the millions of dollars have run out and either have or have not been replaced by revenue. Seriously. I will in fact wait for that. Paying people well doesn't bother me, and I doubt it actually bothers anybody. But I'm certainly skeptical in a way that, say, a report from left-wing Slate about how this didn't work would leave me less skeptical, because they'd clearly be reporting it against their will, and probably have examined it within an inch of its life.
And even through what I would consider substantial bias, the article's own text leaves a lot of room to be concerned about this maneuver. He's basically spending almost the entire profit of the firm on salary, then promising not to lay anybody off or cut salaries even if times turn bad. Well... guess what that translates to... if the company hits problems, he'll end up going out of business and these people will suddenly not have their jobs at all. Or his glittering promises that you're so excited about will turn out to only have been words. Or something that does not involve everybody keeping their jobs at way above-market pay in a company that can't make payroll.
He's welcome to do this experiment, but maybe we should all wait to make sure it succeeds before getting too excited about it, and demanding that anyone who thinks it likely to fail consider themselves bad people who should feel bad. All the best to him (again, no sarcasm at all), but the most likely outcome is that he goes out of business in the next recession.
An experiment that drastically raises low-end salaries can therefore be viewed as a big threat to those whose wealth depends on being able to get away with paying their employees low wages.
We can all argue endlessly about what constitutes a low wage, to what degree we should let the market decide, etc, etc - but the idea that "If there was more money available, we'd happily use it to raise entry-level wages instead of giving it to the top-tier employees" is demonstrably false. This is why this has everything to do with wealth equality.
A solution that can't be sustained isn't a solution. It is a category error to treat it as a solution merely because you like it, or it flatters your politics, or it makes you feel good, or it provides you a cudgel with which to hit your political opponents. None of those things will prevent the company from going out of business, if it does, and then nobody has a job.
> Paying people well doesn't bother me, and I doubt it actually bothers anybody.
To which I pointed out that it might well bother some groups of people.
You also asserted that:
> ... has little to nothing to do with the problem of "wealth inequality". Everybody already knows that if it were possible to just pull wealth out of thin air everybody could have more.
To which I pointed out that it does in my opinion have everything to do with wealth equality, sustainable or no, as this experiment is (IMO) primarily about where and how payroll gets distributed, not about how large payroll might be.
I read your post carefully, several times, before replying. Please do mine the same courtesy. Thanks.
[The __emphasis__ was mine].
jerf was saying that determining if "wealth equality" can be a solved problem depends on whether Gravity's strategy is sustainable and a ultimately proven as a success. jerf is looking beyond the salaries experiment and current media hoopla.
jfindley is saying that the mere existence of the experiment without consideration of whether it succeeds is itself a conversation about "wealth inequality".
You guys are talking about 2 different things.
On one note, there's a reason that some roles are paid $40k instead of $70k and it has nothing to do with the value of the person. It's that the role doesn't create enough value - sales, retention, growth - to make that make sense. It's feasible to make an employee a few percent more effective but nearly 2x? I'd love to see that.
On the other side, I'd love to know why the the sudden influx of cash. Was it just to get rid of his assets? (a divorce?) Or did the company need the cash? If they needed it and business was good, why not outside investors? If they needed it and business is poor, then he's just doomed his whole cause because of the "see, I told you so!"
Regardless, I'm looking forward to seeing what this looks like longer term.
But he didn't pull wealth out of thin air to do this, he reinvested existing wealth back into his business.
While not every business can do this, there are arguably plenty that can. Over the past 10 years, corporate profits are up and so are executive salaries, compared to medium income.
So it's not that people wish that wealth could be create out of thin air. It's that wealth is being created, it's just being distributed differently.
I think the most insightful comment from Dan was that he realized he was still managing his business in crisis mode, hoarding cash in case another huge financial meltdown hit--but that was unintentionally impeding his business growth by harming his workforce.
This arguably describes thinking of a lot of business executives, who are hoarding cash both personally and in the businesses they lead. It's possible that this is one reason we are seeing less than stellar economic growth right now.
Anyone who disagrees is still free to use their own money to pay their own employees peanuts from their mega-yacht.
With Gravity being the exception, this is not what happens in reality.
The problem is that there isn't one universal definition of fair. Conservatives, liberals, libertarians, socialists, they generally all (with individual exceptions of course) want a society that is fair, but with different, mutually incompatible definitions of fair.
Conservatives tend to preach that in a fair society, everyone gets what they deserve. Harder working, more talented? Then you deserve more. Socialists tend to preach that in a fair society, everyone gets what they need.
The group who need the most doesn't overlap with the group who is most talented and able to work hard, so conservatives and socialists will never agree on what is fair, or even that the other group believes in fairness.
The definition of fairness is subject to research under the name equity theory [0]
The three extremes are (AFAIR):
- equal distribution
- distribution proportional to contribution
- distribution proportional to need
The problem with extreme 1 and 3 is that they provide no incentive to increase your contribution which is why "capitalism" is superior to "socialism" in terms of productivity.
[0] https://en.wikipedia.org/wiki/Equity_theory
Right now wealth is distributed according to your rank. Rank unfortunately is nowhere near proportional to contribution.
You are free to design your own incentive system and compete with those you believe rely too much on rank.
Then again the alternative isn't too pretty either.
That may be true under normal circumstances (you will likely see overall productivity drop once the poor start to starve or freeze to death) but that still leaves the fundamental disagreement whether overall productivity is more important than meeting everyone's needs.
http://www.economist.com/news/leaders/21578665-nearly-1-bill...
Has global poverty dropped due to unchecked free market capitalism? Is there a place where such a thing is applied?
Global shift from centrally controlled economies to more free market economies -> fewer people that are poor -> fewer people that are starving or freezing to death
> will never agree (...) that the other group believes in fairness.
This is how a political gridlock develops, how wars start. Who is going to negotiate with a side that doesn't even want to be fair? I know I wouldn't, it would be pointless.
Gold is rarer, than oxygen and carbon. The market prices it higher. Does that mean it contributes more? Is gold more important than oxygen and carbon?
Sure, there needs to be an incentive to work hard. But there shouldn't be an incentive to being born in the lucky circumstances that leads you to becoming a surgeon, or the even luckier and more exclusive circumstances that lead you to becoming a CEO (white, male, relatively privileged). And why does a CEO who works hard 80 hours a week deserve more than a janitor working 3 jobs 80 hours a week just to keep her family afloat, to get her kid enough food and a safe place and help her get through the crappy public school that the CEO pays $30-60k a year (multiples of the janitor's salary) to keep his kid out of?
There shouldn't be an incentive to treat people as commodities. Does a surgeon deserve twice as much if for whatever reason there are half the number of surgeons this decade compared to last? Does a janitor deserve half the pay just because the birthrate increased and there are twice as many people to compete against? (I'm simplifying. It's not important whether doubling the supply halves the price.)
That, or leads to a repressive state and economic ruin. You can't pretend that Denmark is socialist but not many of the failed South American countries.
Paul Graham has an interesting perspective of inequality:
> Economic inequality is not just a consequence of startups. It's the engine that drives them, in the same way a fall of water drives a water mill. People start startups in the hope of becoming much richer than they were before. And if your society tries to prevent anyone from being much richer than anyone else, it will also prevent one person from being much richer at t2 than t1.
He acknowledges that people don't do things just for financial reward. People build products because they love building things. The things you have to pay founders for is doing the mundane operational support that is required for most projects. No one likes doing that.
He goes on to argue that inequality is the result of people being able to more effectively use their talents. The "10x programmer" isn't paid 10x as much, but few programmers could argue that he should not get paid a lot more than just an average programmer despite being much more effective.
I get that inequality is distasteful, but I would rather be richer in a less equal economy that be poorer but average.
[0] http://www.paulgraham.com/inequality.html
there's no debate that anyone would choose to be the richer one in any situation. The question is whether you'd rather be the poorer one in a less equal economy, or the poorer one in a more equal economy.
The CIA had a lot to do with that. It instigated coups against democratically elected heads of state and supported repressive dictators in most of South America in order to protect American businesses there.
Suppose two people start at 10. One person finds a way to go to 20 and the other goes to 11. The inequality has increased and the wealth of both people has increased.
Technically, this is a social improvement. But egalitarians would say this is a terrible situation because the gap has gone from 0 to 9.
It doesn't matter if the right wingers are poor or struggling themselves: rather than envisioning a world in which they don't have to struggle as hard, they envision a world in which they have broken beyond their struggle somehow and are now being bled by the "taker" leeches as a result of left wing political goals being met. The sad side of this is that many of these people have zero chance of breaking beyond their struggle specifically because there is not wider political support for redistributing resources.
The fall into poverty is an act of justice in this perverse mindset. Poverty is the result of bad choices of the individual in their view. Of course we can dismiss this kind of simplification as childish (the result of an intentionally crafted propaganda campaign designed to cause people to vote against their interests), but there are millions of people who will have hateful fire in their eyes if you deny that poverty is avoidable for any person with the proper magical choices.
Massive pay disparity...
Profit sharing. What's fair?
The rhetoric about minimum wage is a distraction, used to obfuscate the simple fact that labor is getting its teeth kicked in.
If corporations (et al) weren't racking up record profits and warehousing cash, I'd be more sympathetic to their plight.
The criticism, mostly originating from Austrian based economic thought not right-wing groups (however most individuals on the right subscribe to the Austrian thought), was that the economics of the $70,000 wage was not going to end well for the company, not any suggestion of opposition to fairly paid society.
Comments varied between what the profit margin would be and the effect on role distinction. The main comments were how the effect would play out for those employees that the company had previously valued at $75,000 with a double pay differential from the $35,000 now having the individuals who performed the same task being given the $50,000 wage and phased up to the $70,000; eliminating the meritocracy of a $75,000 wage. Additionally, the internal machinations and reports bore out the Austrian point of view as valued employees quit citing unequal pay raise values for the lowest valued employees. [1]
To be fair, MarketWatch and Slate bring up a doubling in profits and revenues, but how much of this is based on an increase from the publicity and is it a long term sustainable idea.
Gravity Payments is profiting $2.2 million on $150 million in revenue. The Seattle Times article notes that payment processing services are razor thin margins.
Let's do the following financial analysis: * Gravity Payments has a 1.5% profit margin at its current rate of burn, $2.2 million over $150 million.
* Gravity at announcement time had 120 employees, of which a documented 25% would see a double in their pay, 30 employees who were making $35,000. Estimating the rest of the company's effected staff, estimate another 30 will be brought up to $50,000, another 20 brought up next year to $60,000 and then finally another 20 to $70,000, for a total of estimated 100 employees affected by this move.
* Costs have now increased for the 30 base salary employees to $1.5 million more, assuming a cost increase of $20,000 per person average for the remaining group of 70, you are an additional $1.4 million.
* After the full effect of the increase is factored in, the costs outweigh the current operating situation.
* The counter-argument of increases in business are offset by the companies need to hire additional staff to handle the increase. These individuals are brought into the existing cost structure and are not able to move the profit margin.
The company will be having some issues next year making good on its promise of wage increases and certainly in 2017. This basic analysis is why the finance person quit, she saw what I am showing.
[1] https://mises.org/library/what-happened-when-one-company-set...
[2] http://ww...
https://news.ycombinator.com/item?id=10445012 https://news.ycombinator.com/item?id=10442726 https://news.ycombinator.com/item?id=10441107 https://news.ycombinator.com/item?id=10446171
Personally, my opinion is that since karma points are made up and worthless, it doesn't matter. Allowing dupes makes it more likely that cool stories will hit the front page, at the cost of annoying a few people. Seems like a good tradeoff to me.
In any case, in the long run it all averages out. The likelihood that this works for you is just as high as it is against you.
https://news.ycombinator.com/newsfaq.html
I wish more people would realize that those earning less than themselves are not necessarily less deserving but merely less valuable in a marketed job force.
It's very common but do we have any proof?
Surely, personal circumstances are very important if you are going to try to start a business.
There is psychological circumstances like: did you grow up in a family or an environment where the idea of start a business was present?
And more practical like: Do you have technical abilities that you can sell if your project fail? Do you or your parents, wife, etc. have money that will stop your fall if the project goes wrong?
Was really Bezos or Gates or Page really "taking a risk"? And I mean a real risk.
Anyway, even if we, as a society, want to reward the "job creators", we probably don't want to live in winner take all world.
I'm curious about that statistic. A lot of these business could be hobby or other casual enterprises, tax avoidance schemes, and doomed businesses started by naive people. It doesn't mean a whole lot without some more context.
>Imagine taking a job where you had to pay for your office, office supplies, computer, and every thing else out of pocket.
Become a teacher!
>...that is a social discussion.
Social factors aren't irrelevant. People behave differently based upon socio-economic incentives. Not just entrepreneurs, either; take two engineers, one comes from a family with "fuck you" money, the other is a first generation college graduate. They both have started their own families and have young children at home. Now, imagine how their reactions might differ when placed in various ethical dilemmas.
All models are wrong, but some are useful. That particular stat covers a pretty good cross section of legitimate small businesses. Some small businesses may be a cover for an underground marinara sauce operation used by the mafia to funnel dollars to a dog fighting operation..... Sure we could muddy it up more, but I don't think that stat is all that malicious or disingenuous.
> Become a teacher!
This claim does seem to be a bit disingenuous and exaggerated. Sure teachers cover an unfair amount of supplies and get paid very little. Do they really rent their classrooms, buy their own computers, and pay for 100% of everything out of pocket?
> Social factors aren't irrelevant.
My post was refuting the claim that entrepreneurs aren't taking real risk. Granted if you come from a wealthy family you aren't taking as much risk starting a business as someone taking a small business loan. I still contend that the risk to an individual (relative to them-self, not others) is greater when starting a business than taking a job.
It was exaggerated a bit!
>Do they really rent their classrooms,
Of course not, but increasingly, my own resources are being put to use on behalf of my / my employer's students. Furthermore, remuneration in my field is easily several times what it is in education; and I think that's true for a lot of teachers. Sure, there are other benefits, but the pay is poor, approaching minimal, and that's not going to get you the best teachers.
>buy their own computers
Often enough, yes.
> and pay for 100% of everything out of pocket?
Far, far too much out of pocket.
> I was saying that entrepreneurs take significant personal and financial risks and there is a high rate of attrition for even good businesses.
I agree, and I think it's may just be a nasty feature of our country's demographics and the law of supply and demand.
I'm reminded of a post from a few years ago (I think I saw it here) examining someone's observation that a lot of engineering types were packing up and moving to Germany to start their company because failure would mean less financial hardship (that's not a great summary of the article). Here is an article in a similar vein (vane?). http://www.theatlantic.com/business/archive/2012/10/think-we...
Only a small number of bootstrapped companies (few of whom are represented on Hacker News) are risking their own money, and even then only the brave (or foolish) push it to the point where they can't sustain themselves if the business fails.
Also some business owners do leverage some retirement savings when starting a business. It's a pretty good way to get low interest money. They can sustain if things fail, but they certainly feel it if they fail.
Kind of interesting to think about what the negative consequences actually would have been for Bezos if Amazon couldn't survive the dotcom bubble.
And if you require a carrot that takes you from, say, $2M to $2.5M salary, maybe re-consider what motivates you and try to find something more intrinsic to the work & company itself.
Not that I disagree with you, I just think the numbers don't add up to be called massive.
Who are you to tell someone their motivations are wrong? I agree with you for myself wholeheartedly but I'm not about to go dictate to people what they should be motivated by. How incredibly arrogant.
The founder may have lost more money, but he had more money to gamble with. The employee does not, and losing his personal income stream is probably equally or more damaging to him.
Oh yes, I forgot about the masses of un-wealthy people who have equity.
He is an entrepreneur/founder. He isn't just a company hopping CEO with soft landings and golden parachutes galore. I think an entrepreneur deserves a solid risk premium.
They might be in a position where they don't have too much debt or it would not be tied to him and not put him in a difficult situation if it failed.
The bottom line might be that the risky part of founding the company is over.
When comparing stocks and bonds you use the risk free interest rate and take a stocks volatility compared to the broad market into account. Maybe the volatility of the business should be a consideration.
She is much more valuable to society than I am.
edit: grammar
The value to 'society' of improving a toaster by a small percentage, or the hits to a website by a larger one, are hard to calculate except by a bottom line. Any emotional impact is so indirect as to be invisible. Still exist; but we don't see them so can't count them.
Add to this: one-on-one services are limited by the time and attention one person can put into them - two hands, one heart, 24 hours in a day. Absolutely no leverage at all, in the economic sense. Exceeding that (admittedly large and important) impact happens at some point in less-direct exchanges (economic, technological) and can go up from there geometrically.
So I console myself, as a technician, that what I do affects those unseen people. And if successful, it affects millions, not just tens. It adds up to something important too.
I'd argue the huge pay differentials are often because humans are TERRIBLE at judging long term... anything. A pro athlete can fill a stadium at some $$ per seat, yes. If a pro athlete stops playing, what happens? the stadium stops filling as much, we potentially lose some ancillary jobs from decreased viewing population (but given the number of sports stars and the nature of teams, losing one outside of a very few likely won't cause much), but in the long term, what is the cost?
Now let's remove an equal number of teachers as could be paid with that single salary. Even if this is a low end athlete, given teacher pay, you're losing dozen/few dozen teachers. What is the long term cost to students who can no longer be educated, or get a much poorer education (or simply now have far bigger classes)?
I realize there are many holes in this argument as it asserts a lot about how money is distrbuted/what externalities exist, but I see it as one facet.
There are also the more well explored aspects of "we like to lionize celebrity/success" and "teachers don't have much political or social clout given their resources/our prioritization in society" (although this links back to my prior statements about long term value and society preferences.)
In summary, I think there's plenty of reason to hate/feel guilt about it, and work to change it. Yes, the feelings alone do nothing, but if no one is getting angry then certainly nothing will ever change.
A star performer's pay is possible because millions of people can enjoy his/her performance at the same time, paying a relatively small amount of money (say, $80/ticket).
The software that the poster above developed can potentially be sold to a lot of customers with no extra work, so he makes an above average salary.
A teacher cannot teach millions of people at the same time, the limit is usually set at 20-25 students.
A care-provider can only take care of one person at a time, a few during the day.
Perhaps, but a natural effect of the way that capitalist economies work is that contributions aren't valued by social utility in a fair sense, but by utility weighted by the wealth of the people to whom that utility is provided.
There are great and horrible human beings who make lots of money. There are great and horrible human beings just scraping by.
Income and goodness are orthogonal.
1) it's only been six months
2) doesn't say whether a $70,000 minimum is particularly high for the jobs that are at his company
1) It's been six months. I've recently wondered how it's going.
2) The article did say starting wage was $35K at his business.
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$38k is the median average in my area, but tech is in its infancy here. If this place does have the tech boom that so many are pushing for, then the median average (based on current market rates) is going to shift upwards by a nice chunk of change. As such, it would seem as if other industries are being underpaid if the only metric is median income.
It would be about $34k here in Philadelphia, which would be very low at my company.
One company can't fix this problem alone, though Gravity's effort is laudable.