Article: The thing about hourly rates

[aesmithwriting]

So there's this interesting effect that many people have wrote about regarding how money motivates a majority of people up until they are living comfortably and beyond that it starts to just not be that motivating SAT 11:17 PM So the general idea that "more money = more motivation" isn't true. People are more motivated by comfort in general

"more comfort = more motivation" might be a bit more accurate, but then for a lot of people more comfort means doing less

Ultimately people have these hereditary strong evolutionary pressures to conserve energy

So people on average tend to want to work less and so forth But all these things are not really accounted for in this traditional sense of economics that talks about these "rational economic actors" who seek to maximize their earnings But then on the other hand when you have these non-human things like market dynamics you see that these equilibrium points are more based on money again But getting back to the hourly rate connection here, people often strike this deal with salary that goes along the lines of "I'll get paid less in return for not having risk about my income" which then means they are effectively getting utility from the reduced risk in the form of more gauranteed comfort

So another factor in play is that there's firms who seek peak performance and those that seek headcount growth of adquate performers. Take a common example of sports, you can't get 1000 average players and win a stanley cup or something, you need a much smaller but elite team. In these situations people are hiring based on who performs best, and there's always scarcity of the best talent due to the competitive nature of things. But then also you get the far more common situation in many corporate setups where many firms are more focused on just filling roles, and are not focused on peak performance. In a lot of areas if an employee makes more money than it costs to hire them one strategy is to just try to hire as many employees as you can. This is common in the placement industry that doesn't especially care about peak performance

So there's this really interesting dynamic with pay in those 2 sectors, the commodity sector is far more concerned with cost of replacement of employees than the "productivty" of employees

Which then brings me back to the point about hourly. The realization I had was that in the replacement paradigm for hiring you get this really stong upper limit on how much people get paid which is based on the amount of money it takes to live comfortably as an employee. In Melbourne Australia this is about 140k/year and in Niagara maybe it's 90k. It's that amount at which you can live very comfortably. And people realize that this effect is so and just don't really offer much more than this in salary as a result. There's a very strong market distortion going on here

So you tend to see this really big falling off with job ad salarys in this band. Not a lot of people earn 25-50% more than this amount. They tend to earn less or substnatially more. Very few employers pay in that middling and many people in business who run these replacement type employment situations are themselves not working for salary

but then there's a few other weird side effects of all this too, people anchor contracting rates against this salary rate

You commonly hear "You should get paid N*full time" where N is some multiplier that's seen to be the appropriate amount to cover overheads and, as it turns out ironically, risk, of not being a salaried employee

But the risk part of this mental calculation is completely out of whack in the new post GFC work world because the employee wages aren't really at the market equilibrium rate to begin with in many cases anymore

So the difficulty in this is that people will look at hourlies, do some multiplier to see what contract rates are, then they will pay this

I quoted a friend $130-150an hour to hire me. I realized soon afterwards that's actually a massive mistake since I make companies vastly more money than this

But I realized that if I started upping this I'd run into that "oh he want's to get paid more than three times the full time staff" situation

But if we had the same offering mentally framed as a product we would bypass the entire thing

[shuttle1987]

I think we should be very clear about this internally but perhaps we shouldn't post the same thing publicly?