<p>We should also keep in mind that higher engineering “cost”, on average, would result in more productive engineers. Right now, many of the best college students don’t really want to work as engineers because they don’t think they will be paid sufficiently relative to other careers (i.e. consulting and finance). Even those people who do take engineering jobs often times do so for only a few years before leaving the industry ( i.e. to obtain MBA’s…and then to consulting & finance). If engineering jobs paid better, they would probably stay. Their superior engineering productivity would therefore serve to counteract some of the extra labor costs.</p>
<p>For those wondering why that doesn’t happen now, the problem is that engineering labor markets, like all labor markets, are deeply imperfect due to informational and social frictions. In a perfect market, every engineer would be paid exactly according to their productivity: the infamous “marginal cost = marginal revenue” economics axiom. I think it’s generally true that at most companies, the vast majority of work is actually accomplished by only a small core group of employees. An engineer who is 10 times more productive than the average would be paid 10 times the average salary in a perfect market. </p>
<p>But that obviously doesn’t happen. Engineering salary differentials tend to be minimal. Even the most gifted and most experienced engineer at any given company probably makes no more than 2-2.5x what even a new hire right out of college will make. A newly minted chemical engineer will make $65k right out of school, but even the most experienced chemical engineer rarely makes more than $120-150k. It strains credulity to believe that the experienced ChemE isn’t at least 2-2.5x more productive than the new hire. {But companies can’t respond by lowering the salaries of new engineering hires to, say, $40k, because that would simply mean that fewer people would bother to tolerate the rigors of an engineering major at all, instead opting for creampuff liberal arts degrees and that $35k starting salary. Why suffer through the hell of engineering weeders if it translates into only an extra $5k a year?} </p>
<p>The upshot is that the best talent generally are deterred from working as engineers because they’re not being commensurately rewarded. They’re incentivized to switch to other industries where they will be rewarded appropriately. </p>
<p>It is for that reason that the imperfections of the labor market for engineers has caused it to unravel at the high end. Those people who would be the most productive engineers don’t even want to work as engineers at all and so they exit the market. But of course that means that the average productivity of engineers decreases, and firms respond by reducing the average salaries paid, which causes even more of the better engineers to exit the market, etc.</p>
<p>It was TomServo who asserted that some engineering work has to be done here. Those are the engineering markets to which my comments are addressed.</p>
<p>But that then does lead to a possibility. We could require certain industries to employ licensed US engineers as a condition of their operation here, in the same manner that legal and medical work in the US has to be provided, as a matter of law, by a licensed US professional. True, some medical and legal services can be outsourced. But it still must be officially overseen by a licensed US professional. </p>
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<p>And that’s why the goal is to change the status quo. The political and regulatory process is one way to do so. </p>
<p>As a historical example, it used to be the ‘status quo’ for companies to dump whatever pollution they darn well pleased into our waterways and atmosphere. Heck, it used to be the status quo for companies to crush strikes by force, including not only the use of private mercenary armies but even calling in US military airpower against the strikers. It also used to be the status quo for company owners to not only lock employees in a skyscraper such that they can’t escape a fire, but when said fire occurs and kills over 100 of them - some by desperately jumping from the 10th floor to the street to escape the flames - to not only have the company owners get away scot-free, but for them to actually make money from the fire from the insurance. </p>
<p>But such behavior is clearly not acceptable today, because the status quo has changed.</p>
<p>Yes, usually the beneficiaries of a scam are quite happy with the scam. I suppose I should be able to get the government to pass whatever laws I deem necessary to benefit <em>me</em> at the expense of my fellow man? Instead of a meritocracy we should have a system where the politically-well-connected rig the rules to reap the benefit, rather than simply trying to be as productive as they can be at providing a service that somebody else wants to buy?</p>
<p>And engineers are not underpaid. They aren’t rich, but they are among the highest-paying bachelor’s degrees there are. And take a look at the Fortune 500 CEOs and see what they majored in…</p>
<p>Yes, and that is because those things cannot be easily sent overseas. Try defending yourself in court with a lawyer living in Japan, or try having a surgeon in Japan do your kidney transplant. You may find it doesn’t work out so well (though if technology improves enough…).</p>
<p>Now try using technology designed by engineers in Japan. You’ll quickly notice it doesn’t matter where the engineering is does, so long as the quality of engineering is the same.</p>
<p>There are all sorts of laws (licensing and otherwise) which ensure that lawyers and doctors will not be out-sourced. And our tradition/legal mandate to get our health care provided via our employer ensures a steady demand for homegrown health care.</p>
<p>You cannot compare industries like health care and legal counsel, which by their very nature are a local business. Economic forces affect them in different ways.</p>
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<p>After reading the above, I’ve decided I’m not going to debate you anymore on economic issues. With all due respect, you would have to get a grounding in basic economics before any debate with you would be fruitful. You have too many misconceptions and preconceived notions for me to clear up here.</p>
<p>Oi, sakky is making my head hurt. Okay, I have to respond to a lot of what he’s said, not because I want to debate with him, but purely for the benefit of other lurkers on this thread so they don’t fall for his half-baked economics.</p>
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<p>Labor markets are imperfect, but barring any major government-created distortions, they aren’t “deeply” imperfect, in fact they provide a very good approximation of a perfectly competitive market. It’s like saying a hockey puck won’t move the way it’s supposed to because it’s not on a <em>perfectly</em> frictionless surface. It’s a darn good approximation however, good enough for our purposes.</p>
<p>He also seems to be making the mistake of confusing “work” with “productivity.” What is “productivity”? IT’S WHATEVER THE BUYER OF THE LABOR SAYS IT IS. When you go to the store to buy something, you as the customer are the ultimate decider of what product will maximize your happiness. It may take multiple visits to the store and multiple transactions to determine what product maximizes your happiness (i.e. which egg nog is the best for you) but no third-party can make that decision for you. The grocery store manager can’t point to a different egg nog and say “but this one is better, buy this!” if you already know what you prefer. And if you don’t like his price, you can go elsewhere.</p>
<p>In the employer-employee relationship, the employee is the grocery store and the employer is the customer, buying your labor (i.e. your output). Employers tend to know exactly what they want (competition among firms ensures that only competent managers stick around for long), <em>and</em> they know how valuable it is to them. I mention all of this because then sakky says:</p>
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<p>So according to sakkynomics, sakky knows better than the actual companies in question how valuable a particular employee is to them. Sakky, a third-party observer with no money invested in any of the companies and nothing to gain or lose from the company’s performance, is in a better position than the actual managers involved to decide what an employee’s productivity level is. An engineer ten times more productive than average <em>would</em> be paid ten times more than average. You cannot talk about productivity without talking about the value of a worker’s output. “Productivity” becomes meaningless without talking about wages (iow, a worker’s market value). So to say that there is some gap between productivity and wages is nonsense, it’s like saying there is some gap between diameter and circumference. “Productivity” is <em>defined</em> by the market value of that employer’s wages. Sakky may consider a particular engineer to be “ten times more productive” than another engineer, but he is in no position to say this because he is not the “demand” side of the equation.</p>
<p>If Engineer X believed he was worth ten times more than he was getting, then he would leave for another company that would snatch him up in a heartbeat to have his productivity (or start his own company). Managers are fully aware of this dynamic, so this gives them the incentive to pay engineers enough to keep them with <em>their</em> company.</p>
<p>There are extremely productive engineers. And they tend to get extremely high salaries, or start their own companies and clean up. Sakky ignores this. When an engineer has been with a company twenty years and is “only” making twice what a new hire earns, rather than assuming that we know more about that engineer’s value to the company than the hiring managers, we should assume that the engineer’s productivity is “only” twice that of the new hire. And this isn’t hard to believe, either. Simply having decades of experience doesn’t necessarily mean you make more valuable designs or contributions to the company’s bottom line.</p>
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<p>Really? Even though a great many CEOs are engineers, they’re still underpaid? The founders of Compaq, TI, Ken Kutaragi, Steve Wozniak, Cray (I could go on). Are you really trying to make the case that the most productive engineers aren’t well-paid? It seems to me that they are. Instead of “unraveling,” I simply see engineers at the highest level going into different forms of employment besides cubicle-dwelling drones.</p>
<p>More to the point, average starting compensation for engineers has been going up, up, up. Yes, starting <em>salary</em> has only marginally outpaced inflation (if at all), but you’re ignoring the costs of skyrocketing health benefits (and other benefits), which engineers continue to get. As far as employers are concerned, the price they are paying for labor is not just wages but benefits. They could pay us entirely in tic tacs, but as far as they are concerned they are only looking at the price of our compensation, not the form.</p>
<p>So, following that, how can it be that average productivity in engineering is going down?</p>
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<p>The examples sakky gave were of using the government to <em>prevent</em> firms and individuals from imposing unnecessary costs onto third-parties. Pollution, warfare, etc. Since sakky doesn’t provide a source for the fire insurance story, I can’t really respond. But I can cite this article:</p>
<p>…fire insurance has been regulated for quite some time, long before skyscrapers. Regulations can take many forms, so broad statements about them are dubious, but I will say this: many if not most regulations don’t fix the problem they were intended to and simply create more distortions in the economy which lead to even greater problems.</p>
<p>Anyway, what are sakky is advocating in regards to licensing is the opposite of the examples he gives. Here he is talking about <em>imposing</em> unnecessary costs on innocent third-parties for the benefit of engineers.</p>
<p>I feel like all you are doing here is saying ‘b-b-b-but in an economy with perfect rational actors this would never happen!’. I think that if you’d want to argue against what sakky is saying, you’re going to need to use empirical evidence. Simply stating, ‘no you are wrong, employers know how to perfectly price labor (or whatever the economics term is)’ seems silly to me. To use a science analogy, it’s like Isaac Newton handwaving away his own experimental results suggesting that light is a wave and stating that, no, light isn’t a wave, but it is composed of little particles.</p>
<p>Since you clearly ignored what I said about a free market economy being an <em>approximation</em> of a perfectly competitive market rather than a genuine <em>perfectly</em> competitive market, I’m wondering if I should bother responding in the first place. But I have time, so I might as well.</p>
<p>Okay, you say I need to provide empirical evidence. Of which point exactly? That an individual has a better idea of how to maximize their own utility than a third-party observer? That a company and its managers, putting their own money, their own careers and reputations to their co-workers, bosses, and customers on the line when deciding how to conduct their business, how much to pay their employees in order to retain them, how to maximize profit, has a better idea of what decisions to make than some government bureaucrat in an office a hundred miles away with no stake in the decisions?</p>
<p>Okay, here’s my empirical evidence. Take a country. Divide it in half. One half will have a (more or less) free market economy, with prices based on supply and demand, people will be free to stop and start businesses, move from job to job, buy what they want to buy and refuse to buy what they don’t want to buy, IOW all the trappings of a market economy. The other half of the country will have its economy in the hands of the government. Wages and prices will all be set by government planners. Wait fifty years, see what happens.</p>
<p>Somebody performed this experiment with Korea and Germany. It turns out that the market economy prospered and made better use of its resources than the command economy. There’s my empirical evidence.</p>
<p>The problem is that some people, like sakky, are taught the basics of econ very badly, and so they don’t really know what’s going on. They are taught that the laws of supply and demand are (1) only a hypothetical model for a situation that doesn’t come up very often in the real world, and (2) that in the real world markets are so imperfect that (3) the conclusions one would draw about prices and wages from the supply and demand model are inaccurate. They’ve been taught the concepts of supply and demand in such a rigid, mathematical way that they don’t really understand how it applies to the real world, because it certainly does.</p>
<p>Regarding (1), in a market economy almost all prices or wages are determined by supply and demand. Only by coercion can this change. Attempts by the government to “set” prices above or below the equilibrium price (where the price is low enough for the buyer but still high enough for the seller for a transaction to happen) result in surpluses or shortages, respectively. The government destroying tons of food during the Great Depression because its price control schemes didn’t work out. There’s more empirical evidence for you.</p>
<p>Regarding (2), it doesn’t matter nearly as much as some people think that in the real world there are externalities or information asymmetries. Excepting things like some public goods and natural monopolies, what externalities or asymmetries exist have a marginal affect on economic growth and stability and efficiency, not a toppling one.</p>
<p>Regarding (3), even under the “perfectly competitive,” hypothetical model, there are still inefficiencies which cannot be done away with, which are an intrinsic part of the market/bidding process, not some fatal flaw that keeps it from functioning. A shopper moving from one store to another to find a lower price, for example. A customer having to buy a few different brands of something until he finds the one that maximizes his utility. Employers having to learn through trial and error what customers like, or what managerial arrangements are most effective, or where the best employees can be found, or changing prices to keep up with changing demand, etc.</p>
<p>If government bureaucrats did a better job making business decisions (and believe me, pay rates are a business decision), then companies would hire those bureaucrats away from the government to have exclusive rights to their advice.</p>
<p>South Korea and Germany are both examples of heavily-regulated market economies, featuring massive governmental subsidies, infrastructure investment and competitive intervention. They are hardly libertarian laissez-faire wonderlands.</p>
<p>For one, both countries have single-payer government health insurance systems - which make a huge, huge difference in employer costs.</p>
<p>huh? maybe you misunderstand what objection i have with the section of text i quoted. i don’t see what most of your new post has to do with my objection. you are taking my attack on your reasoning as some kind of defense of command economies? west germany being more prosperous than east germany is evidence that engineers wages reflect how much useful work they do? huh? maybe it is my fault for not making my objection clear.</p>
<p>in the text i was quoting, you were responding to sakky’s argument which went like: ‘experienced engineers, while they often do more than 2-2.5 times the work than entry-level engineers, only receive at most 2-2.5 times the salary of entry-level engineers.’ excellent engineers aren’t being paid what they are worth.</p>
<p>your response: well, obviously since they only earn 2-2.5x more, they obviously can’t be doing that much more work—you see in my ideal model . . . etc etc </p>
<p>somehow you’d have to find good data about workers’ productivity vs. their wages to be able to really make yours or sakky’s argument, which i admit is a hard and probably impossible thing to do. but, although it doesn’t jive well with your ideology, i think what sakky said is very plausible. </p>
<p>i have no experience working on manufacturing a real product as a real engineer in a real company, but i can kind of tell even by working on much much smaller scale software projects in school that experience kills. i’ll use software as an example. when you have to contribute to a large complex system like a software program, a lot of your time isn’t spent actually writing code, but rather it is spent trying to dissect the existing codebase and trying to figure out how things fit together and how what you are trying to contribute fits into the overall scheme of things.</p>
<p>if you have experience working on projects with huge codebases (not school assignments), you are going to be able to cut through the details and crap and understand the point of the code way faster than the fresh out of college kid. if you’ve worked there for a while and pretty much know how that particular system works, it’ll take you a lot less time to get something done than the new guy who has to spend a tonne of time trying to figure out how the thing works before he can even start his work.</p>
<p>it doesn’t surprise me at all that experienced engineers are way way more than 2-2.5 times more productive than entry level engineers. i haven’t looked at salaries for experienced engineers, but apparently sakky has and they are only earning 2-2.5 times more than the entry level engineers. these two points suggest that experienced engineers aren’t being rewarded according to the useful work they do.</p>
<p>as a remedy to this, in your previous post you said something like: ‘well if companies aren’t paying you what you think you are worth, you can just start your own business.’ but in a lot of industries, especially manufacturing, you can’t really do that. an example:</p>
<p>if you are an engineer who works on fabricating chips at intel and you feel like you are underpaid and want to start a competing company, there is no way you can compete with those guys. a new fab is a couple billion dollars. you’ve worked as an engineer all of your life–there’s no way you’ve got that kind of wealth or the skills to raise that kind of cash.</p>
<p>Well, I would recommend that you wake up and not be so naive. The truth is, we don’t really live in a true meritocracy, however much we might wish we did. Heck, you freely admitted yourself that, right now, other professions are currently leveraging the political process to secure their monopoly rights. I don’t see why engineers shouldn’t do the same. Perhaps more importantly - companies leverage their political power to avoid having to pay more than they must. </p>
<p>I agree that the very best solution would be for nobody to have political power to enforce their rights - not companies, not other professions, not anybody. Unfortunately, we don’t live in that world. For engineers to unilaterally disarm when others do not is to be simply naive. </p>
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<p>Oh, really? I am quite confident that my knowledge of economics far surpasses yours. Exactly what economics courses have you studied? Which economics papers have you written? Which journals do you read? Oh wait, none? That’s what I thought. </p>
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<p>Uh, why not? Please check your facts: they’re doing it now. Medical tourism does in fact allow people to undergo expensive medical procedures overseas for far cheaper. Legal outsourcing is in fact a burgeoning business, with document review and legal review needing to be overseen by a US-licensed attorney, but not actually performed by them. </p>
<p>*Cost seems to play an important role in the occurrence of medical tourism, many surgery procedures performed overseas cost a fraction of the price they do in America. For example a liver transplant that cost $300,000 USD in America cost about $91,000 USD in Taiwan.[8]</p>
<p>Medical tourists can come from anywhere in the First World, including Europe, the Middle East, Japan, the United States, and Canada. This is because of their large populations, comparatively high wealth, the high expense of health care or lack of health care options locally, and increasingly high expectations of their populations with respect to health care. An authority at the Harvard Business School recently stated that “medical tourism is promoted much more heavily in the United Kingdom than in the United States”*</p>
<p>*When 56-year-old Ward Styner found out he needed a new hip last summer, he did what any logical, uninsured American would do. In pain while selling used cars in Yakima, Wash., he got on the Internet and searched the phrase “free hip replacement.”</p>
<p>Styner didn’t have the surgery for free. But he only paid $15,000–a quarter of what he was quoted at a local hospital–by traveling to Malaysia, and the Gleneagles Medical Centre Penang, through the medical tourism agency MedRetreat.</p>
<p>With more than 45 million U.S. citizens lacking health insurance and no end in sight to the rise of health care costs, Americans are increasingly turning to places like MedRetreat to help them outsource their health care to hospitals in India, Thailand, Turkey and Singapore. It’s estimated that 150,000 foreigners sought treatment in India alone in 2004, and that number is growing by 15% a year, according to the international independent consulting firm Oxford Analytica.*</p>
<p>LPO (legal process outsourcing) services are a nascent but growing practice, with relatively consistent market growth since early emergence of LPO in 2000/01. LPO providers have established themselves in India, the Philippines, the US, Israel and Latin America. They traditionally offer services in the areas of document review, legal research and writing, drafting of pleadings and briefs, and patent services outsourcing.</p>
<p>The truth of the matter is that, whatever your political opinion about health care reform, I think we can all agree that the US doesn’t always provide the best medical care to everybody. While some US hospitals provide stellar care, others are really not that good. To your point, frankly, I’d rather go to a top quality Japanese hospital for a kidney transplant than to a mediocre US hospital, for only will the quality be higher, but the costs will be lower. Similarly, plenty of US lawyers are mediocre. I’d rather have a bunch of highly intelligent and motivated foreigners completing my legal document review than a bunch of mediocre US lawyers. </p>
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<p>But that is the point. They are a local business because the cartelization of the medical and legal professions make them local. There is nothing inherently “local” about either profession. </p>
<p>Let’s take your example head-on. Let’s say that I really did require a kidney transplant. Exactly why does it absolutely need to be performed in the US? Tell me why? It’s not as if US hospitals are the only hospitals in the world that perform transplants - plenty of hospitals around the world do so as well. What’s so outrageous about using them? After all, most Americans are not located nearby to a US hospital that performs transplants, which means that he’s going to have to be flown by air ambulance to one of the hospitals in New York, Boston, Los Angeles, etc. Since he’s going to have to be flown anyway, what’s wrong with flying him to another country? </p>
<p>As a transplant recipient, all I care about is that the procedure be performed safely and effectively. Why exactly do I care where it is performed? </p>
<p>It’s also not exactly true that Americans obtain their health care through their employer. Employers <a href=“partially”>i</a> pay* for their health care. But the actual health care benefits themselves are administered through one or more insurance companies, through which the employer has contracted for one or more plans to offer to employees. Yet right now as we speak, insurance companies are exploring the use of medical tourism to lower costs. </p>
<p>*Medical tourism agencies are expecting this year to be big, as word spreads and the insurance industry warms to the idea of offering low-cost overseas procedures as options in employers’ benefits packages.</p>
<p>“I wouldn’t be surprised if 10 years from now, a majority of large employers’ health plans had added non-U.S. hospitals to hospital networks serving U.S. enrollees,” says Dr. Arnold Milstein, chief physician and national health care thought leader for Mercer Health & Benefits.*</p>
<p>Trust me, it is quite clear that I know far more about economics than you do. If my ideas about economics are half-baked, yours, frankly haven’t even been cooked at all.</p>
<p>No, in fact, labor markets are always deeply imperfect because they are always riven by information asymmetries, which is what the Nobel Memorial Prize winners in 2001 clearly demonstrated. Nor are labor markets even a ‘darn good approximation’ to perfect markets as the entire literature of labor/welfare economics has demonstrated repeatedly. </p>
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<p>While you’re attempting to disagree with me, what you’re saying contains the seeds of why you should actually agree with me.</p>
<p>It is true that consumers of any product will ascribe whatever value they think is appropriate to that product. But ay, there’s the rub: they don’t actually really know how valuable that product is. Let’s face it - consumers know very little about the vast majority of products that they buy, particularly if those products are complex. When I go to the store to buy a suit, I don’t really know which suits are made of high quality fabric. I don’t really know which suits are going to fall apart in a few years. That is why I have to rely on brand names. I have to rely on simple heuristics and bounded rationality - as per Herbert Simon (Nobel Memorial Prize winner of 78). </p>
<p>In fact, that’s the whole rationale for the marketing industry - frankly, to convince customers into thinking that their products are better than others, or in economics parlance, to change the customer utility function. The very existence of the marketing industry demonstrates that markets are highly imperfect: either marketing is effective, meaning that companies can indeed successfully and profitably manipulate customers’ utility functions to buy products they otherwise would not buy, or marketing is ineffective, which means that companies are being irrationally stupid by consistently throwing away money on marketing. Either way you go, the inescapable conclusion is that markets are far from freely competitive. </p>
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<p>Now you’re actually getting somewhere: employers do not actually know what they want, and for the same reasons as above: they cannot really tell which employees are going to be productive and which are not for the same informational problems that I discussed previously. </p>
<p>As a simple proof of this, simply consider exactly why do companies tend to prefer hiring graduates with top grades from top schools? Why, in the IT space, do companies prefer to hire those people with certain IT certificates? Why do companies tend to prefer to hire employees with “experience”, particularly experience with name-brand organizations? That’s because companies have no reliable way to measure productivity. They have to use those other measures as proxies. If they had a reliable metric, they would use it. In such a world, it wouldn’t matter if you have a degree from a top school or not, whether you had top grades or not, whether you had experience or not. All that would matter is how productive you are, and since companies could always reliably measure that productivity, you would always obtain the appropriate job.</p>
<p>But of course we all know that’s not true. Whether we like it or not, experience is important, grades are important, school brand name is important, because they’re used as information signals to alleviate market asymmetries. Signals would be unnecessary if companies could reliably measure productivity. Heck, much of the labor market literature is predicated on the dynamic of signaling. </p>
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<p>Absolutely 100% wrong. As the sociologists and political scientists have established time and time again, companies are not purely - or even mostly - economic actors, but are strongly governed by social and political dynamics. Company wages are affected not only by economic forces, but also have to balance the internal dynamics within the company that serve to impede and often times even overcome whatever economic forces might bear on the firm.</p>
<p>Let me give you a simple proof. Why don’t companies internally publish the salaries of all of their employees so that everybody in the company knows what everybody else is making? After all, if everybody in the company was truly making a salary commensurate to his productivity, there would be no problem, right? In fact, it might actually be healthy for the company, as those who are making low salaries will see that other people are making far more than they are, and will take that as a signal that they ought to improve their productivity. </p>
<p>But I think there is little dispute that such a move would generate tremendous internal strife within the company. Plenty of people would ask: “Why is that guy making more than me, when I [perhaps erronously] believe I am more productive than him?” Many such employees would then probably quit out of spite, or even attempt to sabotage the company.</p>
<p>What we then have are two possibilities: #1, managers are indeed unable to properly measure employee productivity (and so the strife that would be generated from a public salary list would be justified), or #2, managers are able to properly measure productivity, but need to conceal that fact in order to maintain social peace. But either way, the political and social tensions inherent in any company are clear. </p>
<p>I’ll give you another example. Let’s say that a company believes that a new engineering graduate truly is a superstar - far more productive than any of the experienced engineers at the company. So the company announces that they are going to hire him and pay him far more than the existing engineers. We all know what will happen: some of the older guys are going to say "I’ve been here for decades, so why is that rookie being paid more than me? The company can attempt to assert that the new hire is more productive, but that’s just going to be taken as an insult by those other engineers. Whether those other engineers are right or wrong is not the issue, the issue is that unnecessary (and unproductive) social strife will be generated within the company. </p>
<p>Hence, even if an engineer was 10x more productive than the average engineer, you couldn’t really pay him 10x more (or at least, not publicly pay him 10x more) if doing so would generate social tensions in the company - as it surely would. That’s not a mark of bad management, that’s actually the mark of good management. Good managers are able to properly balance the social and political forces within the company, which often times means not paying people according to their productivity if that would generate social strife. {But that obviously doesn’t exactly do any favors for those who are highly productive.}</p>
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<p>See above, I believe I’ve explained this quite well now. </p>
<p>True, nobody is saying that simply having decades of experience means that you’re highly productive. But you’re almost surely more productive than any given new hire. Let’s face it - most new engineering hires don’t know anything. They aren’t productive at all until they’ve completed their company training and had maybe a year to learn the ropes. </p>
<p>Which leads to another example. If employees were always paid according to their productivity, then new hires who are undergoing company training - which generally lasts a month or two - should be paid zero during that training. After all, you’re not being productive when you’re being trained, right? Heck, you could even argue that they should actually pay the company, because not only is the company not actually receiving any productivity from you, if anything, you are taking resources from the company. The company has to invest training resources into you, so you should actually be paying them, right? </p>
<p>But of course we know that doesn’t happen. You are cashing your paychecks during the training period even though you are clearly contributing “negative productivity” to the company. And, like I said, even during the first year after training, the vast majority of engineers contribute little because they’re still learning how to do the job. But they’re still being paid well, right?</p>
<p>You’ve changed the terms of debate. I never disputed that managers and entrepreneurs are paid well, and that includes those who were former engineers, or otherwise had engineering training. Indeed, I myself on CC have recommended that the best engineering students become entrepreneurs.</p>
<p>But we’re not talking about that. We’re talking about actual engineers, that is to say, those working on actual engineering jobs. Managers and entrepreneurs are businessmen, not engineers. </p>
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<p>But we’re not talking about average starting compensation. We’re talking about average overall compensation, whether starting or not. And let’s face it - experienced engineers don’t really make that much money, compared to other professions. </p>
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<p>I don’t recall making a point about the average engineering productivity going down. What I said is that the best engineers are not being according to their productivity. {Whether the average productivity itself is going down is an entirely different question.}</p>
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<p>The unnecessary costs would be the shrunken technological leadership and innovation that this country may suffer because the best human capital doesn’t really want to be engineers, but would rather enter cartelized professions such as law or investment banking. </p>
<p>Yes, 149 girls who were deliberately locked into the building died, some by jumping from the 10th floor to escape the flames, yet not only were the company owners not convicted, but they actually profited from the insurance payouts. </p>
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<p>I agree that many regulations do indeed create problems for the economy. But many others don’t - to the point that even the most die-hard right wing zealot would not seriously advocate overturning them. For example, I think we can all agree that we do not want to return to the bad old days of quack patent medicines or Upton Sinclair-style uninspected food. </p>
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<p>It is certainly true that licensing requirements, and market failures in general, are imposing unnecessary costs on society. Plenty of oligopolies and oligopsonies exist, all markets, especially labor markets, are riven with information asymmetries, companies constantly leverage marketing to create perceived barriers to entry through monopolistic competition to gain market power, plenty of externalities (both positive and negative) are never internalized, plenty of public/common-resource goods are not properly funded, and the government intervenes heavily in numerous markets (Exhibit #1: the financial bailouts). </p>
<p>I might agree with you that the economy would indeed be more efficient if we could eliminate all market failures. But, realistically, we know that we can’t. At least, not in our lifetimes. Given that we have to live with uncorrectable market failures, such that the condition of market optimality will never be satisfied, welfare economics has found (through the ‘theory of the second best’) that adding an additional supposed market imperfection can actually improve overall market efficiency. </p>
<p>Or, in more technical parlance, while the perfectly competitive equilibrium point does indeed maximize overall social welfare, overall social welfare does not decrease monotonically as market imperfections are added, and indeed many market imperfections can actually serve to increase welfare - mainly by canceling out the effects of other imperfections. </p>
<p>To be clear, whether a given market imperfection will actually increase or decrease overall welfare is ultimately an empirical question to be answered by careful econometrics. That is why I am not advocating that we must cartelize and license engineers. I am simply saying that it is an option that should be seriously considered.</p>
<p>Furthermore, I’m still not clear as to why economics is even the appropriate framework for studying this problem anyway. Economics is largely focused upon calculating long-run equilibrium points. But, as Keynes famously said, in the long run, we’re all dead. Real world markets never truly reach equilibrium. This is especially true in technology markets where new innovations constantly upend the dynamics of the economy, and so the markets are always groping towards an equilibrium point that constantly changes and will never be reached.</p>
<p>Once again, you’ve changed the terms of the debate. Whoever proposed anything about a government bureaucrat deciding what wages should be? Simply acknowledging that market failures clearly exist doesn’t necessarily mean that a government bureaucrat should then set wages. </p>
<p>A more amenable process would be to have government set the broad boundaries of the market and then let market forces operate within those boundaries to set prices and establish equilibria. In fact, this is precisely what governments attempt to do now through regulation. Granted, whether that regulation succeeds or fails is ultimately an empirical question. It is certainly true that government policies do sometimes fail. But whether any particular regulation is a failure or not cannot be ascertained a-priori. </p>
<p>In fact, what regulators do seems to be reminiscent of the principle of mechanism design. Where I have heard of that term before? Oh wait, that’s right, the developers of mechanism design won the Nobel Memorial Prize in 2007. </p>
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<p>Actually, I think you just got pwned by polarscribe, as he has correctly pointed out that both Korea and Germany are heavily regulated economies. </p>
<p>I can give you an (admittedly deceptively complex) counterexample: consider China vs. post-Soviet Russia. Starting from 1990, both countries featured pervasive government intervention in all facets of economic life, with state-owned enterprises dominating the landscape, most prices and wages set by the government, and little private market activity whatsoever. Russia engaged in extensive and fast free-market ‘shock therapy’ of releasing most government controls of the economy and privatizing its state companies - and the economy utterly collapsed Russian GDP was actually reduced by a whopping 50%, the poverty rate increased tenfold, and life expectancy declined as free Soviet-era health services were rendered unavailable or became too expensive to afford. Heck, the Russian economy only recovered under the recentralization of the economy under Putin (note, this is not an endorsement of Putinism, only a simple observation that the Russian economy has performed far better under Putin than before). </p>
<p>On the other hand, China implemented free market reforms gradually, retaining and still retains vast control over the economy, continues to own extensive state firms, heavily regulates (or tries to regulate) vast swaths of prices and wages throughout the, implements capital controls and a fixed exchange rate, and is riven with corruption - yet nobody can deny that China has been the wunderkind of the world’s economy over the last 20 years. Nobody seriously believes that Russia will challenge the United States for the title of the world’s greatest economic power in the foreseeable future, but China might. </p>
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<p>These are truly bizarre comments that can only make me laugh. You are seriously accusing me of having learned economics poorly, such that I am the one who is discussing hypothetical models that don’t apply to the real world? Really? Are you sure it’s me? You’re sure now? </p>
<p>Well, let me put it to you this way. I didn’t want to have to bring in aspects of my personal biography into the discussion. But if you really believe that I am poorly trained in economics, let me just say this. Hopefully soon, I (and some co-authors) are probably going to submit a research paper to either the American Economic Review, the Quarterly Journal of Economics, or perhaps the Journal of Political Economy. Granted, we’ll probably be rejected as most submitters are, but at least we’ll give it our best shot. While I don’t want to speak about my own career prospects, my coauthors are or are likely to be tenure-track faculty at some of the most prestigious economics departments in the world. </p>
<p>So now let me ask you - have you ever published anything in an A-level economics journal? Have you ever even written an economics research paper at all? Have you ever even read an economics research paper in AER, QJE, JPE, or even a lower-level journal? Do you even know how to read such a paper? {To be fair, they’re difficult for me to read too, but have you ever even tried?} </p>
<p>Suffice it to say that I think my economics training, while admittedly could always be better, is fairly solid. How’s yours, TomServo?</p>
<p>While it seems like this thread has completely derailed off the original topic I am going to make a comment on some of these statements.</p>
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<p>To address the “competence” issue of new engineers, ABET has started this new requirement for accreditation called “Competency Exams/Questions.” </p>
<p>A competency exam is basically an exam given in every sophomore level and above engineering course made up of around 6-8 competency questions, where ZERO partial credit is given. You must be able to answer all of the competency questions 100% correct in order to pass the competency exam, and the class. But a competency question is NOT a mastery question, it’s basically a simple problem that tests your basic understanding of what you learned in class. As one of my professors put it, these are questions that normally the “C” students have no problem answering.</p>
<p>The main reason for these competency questions is that ABET is worried that a student could make it 4 years of engineering school without answering a single problem correctly & surviving solely on partial credit. Which is to me a scary thought, that someone could graduate without ever knowing even the most basic engineering principle 100%, like say the definition of stress. </p>
<p>Also, some schools provide incentives for there students to take the FE exam. I know my school pays half the registration cost and provides the applications & mails the paperwork for you to take the FE exam.</p>
<p>Then I refer you to what I’ve already said about “productivity” versus “work.” Workers are not paid according to how much work they do, but based on their productivity, a concept inexorably bound up in supply and demand. The value of a worker cannot be separated from his productivity, they are different words for the same thing.</p>
<p>It has nothing to do with “models” or “ideal situations.”</p>
<p>People get confused about the difference between work and productivity because for a long time, physical work and productivity seemed to be correlated pretty well. People laying track or digging ditches got paid based on how much track or how many ditches they dug in a given amount of time. So “work” got confused with “productivity.” But ditches and railroad track are not inherently valuable–nothing is. A man who digs ten ditches and then refills them in one day does more “work” than a guy sitting in a cubicle doing grunt work. But the guy in the cubicle not burning many calories is the more productive worker because his output, the result of his work, is more valuable to a company than the guy digging and refilling ditches.</p>
<p>This is all econ 101 stuff, so you can understand my frustration with having to keep explaining everything.</p>
<p>Productivity <em>cannot</em> become uncoupled from wages, productivity is <em>defined</em> by the value of the worker to the employer and thus the wages are the nominal reflection of that value (which is affected by the forces of supply and demand, i.e. janitors provide a service every bit as important as power plant engineers, but because the available supply of janitorial labor is larger it is cheaper).</p>
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<p>Again, you and sakky are making the mistake of imposing YOUR OWN judgment of how valuable a worker is to an employer when only the employer can know for sure. If you hire two guys to do roof work on your house, one has only been doing roofs for two years, the other guy for twenty, do you pay the second guy ten times as much because he has ten times the experience? What if he only works at twice the pace of the first guy, do you still pay him ten times as much? Of course not, you’d be throwing money away. You would get more roofing done in less time by hiring more workers, not by paying the second guy more than he is actually worth to you. Companies do this too.</p>
<p>Experience, like other things, only has value when value is <em>placed</em> on it by individuals engaging in voluntary transactions. It is not valuable in and of itself. If that were true, then experienced workers would never find themselves out of a job by improving technology–their experience would have remained just as valuable regardless of the circumstances if experience were inherently valuable. But it ain’t.</p>
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<p>For one thing, there are many fabless semiconductor companies, so you’re wrong when you say an independent computer engineer can’t start his own company. For another, there are start-ups of this kind all over the place and many of them do very well (or make a valuable design which is bought for lots of money by bigger companies).</p>
<p>If you, as an engineer, are genuinely as valuable as you think you are, then by definition that means SOMEBODY, SOMEWHERE, is willing to buy your labor at the price you want to charge.</p>
<p>This all comes back to the price system and how it allocates resources by guiding them to where they are most valued and away from where they are less valued. Again, econ 101 stuff.</p>
<p>Find the part where I said that they were libertarian laissez-faire wonderlands and I’ll buy you an ice cream cone. More to the point, both these countries saw explosions in their economic performance following market liberalization, which has cooled following greater government expansion.</p>
<p>Without getting into a big thing about the health care systems of SK and Germany (I see SK’s had to be bailed out by the IMF) I will make three points and then move on:</p>
<p>1) Nobody ever said that having government-provided social services means that you don’t also have a market economy
2) Foreign universal health care systems keep from crashing in on themselves by limiting care to a certain budget number and keep costs down by forcing Americans to pay more for drugs (you read correctly, look it up if you don’t believe me)
3) They often do not have government “insurance” schemes like Medicare and Medicaid taking up the lion’s share of resources and distorting costs throughout the whole health care industry, they more frequently rely on private insurance companies (you can make the argument that most other countries are <em>less</em> socialized in their health care system then ours is)</p>
<p>well i didn’t say that. in my post i wasn’t talking about computer engineers but the materials and electrical engineers who design and carry out the processes to manufacture the circuits: ‘guys who work on fabrication’. some areas of engineering (especially in manufacturing where you need to buy big expensive machines) just aren’t very conducive to people starting their own businesses. not every engineer can start a business in his specialty . . .</p>
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<p>do you honestly not understand what i am saying or are you just picking on me because i am misusing a term? </p>
<p>fine, if you define productivity to be how much your employers value you the productivity vs. wages curve is a waste of time. </p>
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<p>the point i was trying to make with the software example, which you didn’t respond to by the way, was that i can see that for something like engineering this really isn’t true. guys who know the system can really get more useful work done. </p>
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<p>but i’m not arguing that experience is intrinsically valuable? i was saying that from my (albeit limited) experience with engineering i can see how being experienced with a particular project or being experienced with similar projects really really helps with how much useful work you can do. engineering is not like ditch digging–you spend a lot of time figuring out what to do, not just doing stuff–and i can see how some engineers can be a lot better at figuring out how to do stuff than others. i’d be very surprised if all engineers all do about 2-2.5x the amount of work as each other.</p>