I spent some time thinking about this question a while ago. My general conclusion was that some version of your factor (4) is doing a lot of the work; I then investigate how this leads to a meaningful distinction between funding constraint and talent constraint. I’ve just shared my notes here (they were framed for CEA, but should be generally applicable).
The general argument behind expecting (4) to be a big factor doesn’t rely on ‘fairness’ or ‘morale’. It can arise even for totally self-interested rational agents. It goes something like this:
Employing someone is a trade. There is a maximum salary you’d pay for their labour, and a minimum they’d accept. You end up paying them something in the middle, and the trade surplus is split between you.
Individuals are better able to hide their preferences than larger organisations. If the organisation is known to paying $X to person Y for their labour, similarly qualified people are likely to ask for salaries closer to $X in the knowledge that the organisation is happy to pay this rate.
So paying high salaries to some people shifts the balance of power in salary negotiations in favour of other employees. The employer will capture less of the trade surplus of employment in those cases.
Thanks for the linked write-up. I think that provides a good theoretical framework for the issue. And maybe you can do a LessWrong post based off of your writeup—that should get more attention and I’m eager to see what others think of your framing.
Thanks for the exploration of the issue.
I spent some time thinking about this question a while ago. My general conclusion was that some version of your factor (4) is doing a lot of the work; I then investigate how this leads to a meaningful distinction between funding constraint and talent constraint. I’ve just shared my notes here (they were framed for CEA, but should be generally applicable).
The general argument behind expecting (4) to be a big factor doesn’t rely on ‘fairness’ or ‘morale’. It can arise even for totally self-interested rational agents. It goes something like this:
Employing someone is a trade. There is a maximum salary you’d pay for their labour, and a minimum they’d accept. You end up paying them something in the middle, and the trade surplus is split between you.
Individuals are better able to hide their preferences than larger organisations. If the organisation is known to paying $X to person Y for their labour, similarly qualified people are likely to ask for salaries closer to $X in the knowledge that the organisation is happy to pay this rate.
So paying high salaries to some people shifts the balance of power in salary negotiations in favour of other employees. The employer will capture less of the trade surplus of employment in those cases.
Thanks for the linked write-up. I think that provides a good theoretical framework for the issue. And maybe you can do a LessWrong post based off of your writeup—that should get more attention and I’m eager to see what others think of your framing.