Monday, January 13, 2014

Well, I've Never Actually Stepped into the Private Sector, No...

But I can tell you exactly how it works!

It is always amazing to me to hear people who have never worked in the private sector (except perhaps part-time in high school, or something of the sort) declare with certainty things like "Each input supplier tends to receive a payment equal to the value of what his input contributes to the value of the final product."

I recall hiring programming consultants, and thinking, "Okay, I will start at $30 per hour to hire this guy services, but I can go as high as $60." Often, I would get the person at the low end of the range. And, of course, the top end of the range was pretty much sheer guesswork: I had no real idea if the person's marginal value product was equivalent to $60 per hour.


  1. Won't even your guesswork combined with the guesswork of your competitors create a tendency of the wage to move toward the productivity of the individual? If one employer's guesswork is wrong, that'll create losses for the business, and will create a pressure to lower wages in that industry. Vice versa if he's correct. If anything, your point makes it seem like a slower tendency or weaker tendency (rather than an incorrect statement) if the individual making the statement was not aware of the realistic conditions of wage-setting.

    Unfortunately, I am only a part-time worker, but in college, Dr. Callahan, not high school :)

  2. It's one of those statements that, on the surface, might sound like it can be saved by the weasel words "tends to," but the more I think about it, the less sense it makes. Take, for instance, a battery supplier to the auto industry. A car without a battery would be very inconvenient to most consumers, and would probably be worth far less to them... thousands of dollars. But, they could just buy a battery and install it, right? So they would discount the car by the cost of a battery and do so, thus making the claim both true and circular. A battery adds value equal to the cost of a battery.

    Am I being silly here?


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