The employee is incentivised to put the r-min rate as close as they can to their prediction of the employer’s r-max, and how far they creep into the margin for error on that prediction is going to be dependent on how much they want/need the job. I don’t think the r-min rate for new hires will change in a predictable way over time, since it’s going to be dependent on both the employee’s prediction of their worth to the employer, and how much they need the job.
For salary negotiation where the employee already has a contract, I would expect employees to set r-min at their current salary or a little above. This prediction is fully dependent on the consequences of r-max< r-min though. If r-max< r-min results in immediate termination of the contract, then you might see wages stagnate or even decrease, depending on employer’s understanding of the employee’s situation. In general, I dislike this situation, since it incentivises employers to exploit workers who can’t afford a break in employment, squeezing them onto worse pay when they think they can get away with it. It encourages mind games as well—if the employer says “I’m thinking about setting r-max a little below your current salary” then they may convince the employee to lower r-min, and then even if the employer sets a reasonable r-max a little above the employee’s salary, the employee may lose out.
This is interesting, thank you—I hadn’t considered the case where an existing contract needs to be renewed.
I wonder why under your understanding predicts stagnating or decreasing salaries in this world? Currently, employees sometimes quit if they haven’t gotten a raise in a while, and go to other companies where they can earn more. In this mechanism, this can be encoded as choosing a higher rmin, which is set just at the level where the employee would be indifferent between staying at the company and going to job-hunt again.
I agree that this would have downsides for candidates with few other options, and feel a bit bad about that. Not sure whether it’s economically efficient, though.
(apologies in advance for the wall of text, don’t feel you need to respond, I wrote it out and then almost didn’t post).
To clarify, I wouldn’t expect stagnant or decreasing salaries to be the norm. I just wanted to say that there are circumstances where I expect this to be the case. Specifically, if I am an employee who is living paycheck to paycheck (which many do), then I can’t afford any time unemployed.
As a result, if my employer is able to squeeze me in this situation, I might agree to a lower wage out of necessity.
The problem with your proposed system is that it essentially encourages employees to selectively squeeze themselves- if they’re in a situation where they can’t afford to lose their job, then this will lower what they ask at a negotiation, and what they receive, even if the employer is offering the same rmax to all employees. This has little to do with their relative skills as an employee and everything to do with their financial situation and responsibilities outside work.
Here’s an example. I’m not sure why I wrote it, but here it is:
Brenda and Karl work at a gas station supermarket. They both work the same job, on the checkout area, with some shelf stocking as needed.
Brenda is a single mom with a 2 year old child who she is paying for childcare, and the rest of her earnings go on rent, food and fuel for her beat up car (it’s a miracle it’s still running). She works at the gas station 4 days a week, 9-7.
Karl takes on shifts 2 nights a week, it helps pay him through college and he enjoys the extra money. His parents give him enough that he could probably survive without the job entirely, and certainly a period of unemployment would not be a big problem for him.
Brenda and Karl both get paid $15/hr for their work, but they know that the new “payPlav system (TM)” is being introduced by management, and they have a pay negotiation coming up.
Management asks them to read the rules of the new system carefully submit their r-min. They say that if rmax < rmin, then the employee will stay on their existing salary.
Brenda sets her rmin at $15.50. She could do with a significant pay bump, but she doesn’t want to lose out on the pay increase entirely, since she’s only holding it together at $15.
Karl sets a bolder rmin of $16.50. He works hard at the job and thinks he deserves more, but it’s not a big deal if he misses out and stays at $15
Management sets rmax at $17
Brenda gets $16.25
Karl gets $16.75
I don’t think this is fair. It’s a clear case where the system creates a situation where employees who care less and need the money less will be rewarded more.
Here’s another scenario—same as the above, but management says that rmax<rmin will mean termination of the contract.
Brenda sets rmin at $13.50. She simply can’t lose this job, it would ruin her.
Karl sets his rmin to $16
Management sets rmax at $15.50
It’s more extreme, to be sure, and maybe a little unrealistic.
Many workers employed on zero-hours contracts end up in this situation—since the employer is able to lower wages with impunity and they don’t have many other options, they get squeezed for profit. Sometimes unscrupulous employers do this selectively, based on which employees can least afford to stop working. This results in the most impoverished employees losing out.
Or in other words, ‘let’s meet halfway’.
What do you think would happen to the rmin rate over time, in the absence of any methods of enforcing honesty?
The employee is incentivised to put the r-min rate as close as they can to their prediction of the employer’s r-max, and how far they creep into the margin for error on that prediction is going to be dependent on how much they want/need the job. I don’t think the r-min rate for new hires will change in a predictable way over time, since it’s going to be dependent on both the employee’s prediction of their worth to the employer, and how much they need the job.
For salary negotiation where the employee already has a contract, I would expect employees to set r-min at their current salary or a little above.
This prediction is fully dependent on the consequences of r-max< r-min though. If r-max< r-min results in immediate termination of the contract, then you might see wages stagnate or even decrease, depending on employer’s understanding of the employee’s situation. In general, I dislike this situation, since it incentivises employers to exploit workers who can’t afford a break in employment, squeezing them onto worse pay when they think they can get away with it. It encourages mind games as well—if the employer says “I’m thinking about setting r-max a little below your current salary” then they may convince the employee to lower r-min, and then even if the employer sets a reasonable r-max a little above the employee’s salary, the employee may lose out.
This is interesting, thank you—I hadn’t considered the case where an existing contract needs to be renewed.
I wonder why under your understanding predicts stagnating or decreasing salaries in this world? Currently, employees sometimes quit if they haven’t gotten a raise in a while, and go to other companies where they can earn more. In this mechanism, this can be encoded as choosing a higher rmin, which is set just at the level where the employee would be indifferent between staying at the company and going to job-hunt again.
I agree that this would have downsides for candidates with few other options, and feel a bit bad about that. Not sure whether it’s economically efficient, though.
(apologies in advance for the wall of text, don’t feel you need to respond, I wrote it out and then almost didn’t post).
To clarify, I wouldn’t expect stagnant or decreasing salaries to be the norm. I just wanted to say that there are circumstances where I expect this to be the case. Specifically, if I am an employee who is living paycheck to paycheck (which many do), then I can’t afford any time unemployed.
As a result, if my employer is able to squeeze me in this situation, I might agree to a lower wage out of necessity.
The problem with your proposed system is that it essentially encourages employees to selectively squeeze themselves- if they’re in a situation where they can’t afford to lose their job, then this will lower what they ask at a negotiation, and what they receive, even if the employer is offering the same rmax to all employees. This has little to do with their relative skills as an employee and everything to do with their financial situation and responsibilities outside work.
Here’s an example. I’m not sure why I wrote it, but here it is:
Brenda and Karl work at a gas station supermarket. They both work the same job, on the checkout area, with some shelf stocking as needed.
Brenda is a single mom with a 2 year old child who she is paying for childcare, and the rest of her earnings go on rent, food and fuel for her beat up car (it’s a miracle it’s still running). She works at the gas station 4 days a week, 9-7.
Karl takes on shifts 2 nights a week, it helps pay him through college and he enjoys the extra money. His parents give him enough that he could probably survive without the job entirely, and certainly a period of unemployment would not be a big problem for him.
Brenda and Karl both get paid $15/hr for their work, but they know that the new “payPlav system (TM)” is being introduced by management, and they have a pay negotiation coming up.
Management asks them to read the rules of the new system carefully submit their r-min. They say that if rmax < rmin, then the employee will stay on their existing salary.
Brenda sets her rmin at $15.50. She could do with a significant pay bump, but she doesn’t want to lose out on the pay increase entirely, since she’s only holding it together at $15.
Karl sets a bolder rmin of $16.50. He works hard at the job and thinks he deserves more, but it’s not a big deal if he misses out and stays at $15
Management sets rmax at $17
Brenda gets $16.25
Karl gets $16.75
I don’t think this is fair. It’s a clear case where the system creates a situation where employees who care less and need the money less will be rewarded more.
Here’s another scenario—same as the above, but management says that rmax<rmin will mean termination of the contract.
Brenda sets rmin at $13.50. She simply can’t lose this job, it would ruin her.
Karl sets his rmin to $16
Management sets rmax at $15.50
It’s more extreme, to be sure, and maybe a little unrealistic.
Many workers employed on zero-hours contracts end up in this situation—since the employer is able to lower wages with impunity and they don’t have many other options, they get squeezed for profit. Sometimes unscrupulous employers do this selectively, based on which employees can least afford to stop working. This results in the most impoverished employees losing out.