The wage situation needs to be rectified sooner rather than later

[Xeorm]

Not really. The supply is irrelevant. There could be ten million skilled workers for every available job and they would still be paid according to their productivity, again, this is assuming a perfectly competitive market.

Their wages would only be minimal if employing them all lowered their average productivity to minimal levels, which is already reflected in-game.

If there was a monopsony, of course, then that would be a totally different story, but that’s not what the game’s trying to depict.

Individual firms will raise wages to whatever they can afford to attract workers, because otherwise they would cease to exist. It has zero to do with altruism, and all to do with self-benefit.

Except that's not how those things actually work. Firms raise wages to compete with other firms. Assuming pure market forces are at work, you'd have wages continue to go up until they're paid according to productivity only if the labor supply was being entirely used up. What you're missing is that market forces aren't the only forces at work, and that the wage increases are a process. Because this is the beginning of industrialization, not all labor is being fully utilized. That's a core prospect of the time frame that we're talking about. That early stage has people in less productive industries moving towards higher productivity, which in wage terms means industry wages are competing with subsistence wages. Aka, they're paid according to the productivity of the lowest competitor. Gradually those less productive labor uses fall because they can't compete with the high productivity of factories, leading to higher wages overall.

But you also want to consider how non-market forces work. Such as government forces or monopolistic forces. The large power imbalance between peasants and rich factory owners can't be ignored when considering how wages get set.

 

[0watcherinthewater0]

Except that's not how those things actually work. Firms raise wages to compete with other firms. Assuming pure market forces are at work, you'd have wages continue to go up until they're paid according to productivity only if the labor supply was being entirely used up. What you're missing is that market forces aren't the only forces at work, and that the wage increases are a process. Because this is the beginning of industrialization, not all labor is being fully utilized. That's a core prospect of the time frame that we're talking about. That early stage has people in less productive industries moving towards higher productivity, which in wage terms means industry wages are competing with subsistence wages. Aka, they're paid according to the productivity of the lowest competitor. Gradually those less productive labor uses fall because they can't compete with the high productivity of factories, leading to higher wages overall.

But you also want to consider how non-market forces work. Such as government forces or monopolistic forces. The large power imbalance between peasants and rich factory owners can't be ignored when considering how wages get set.

Of course not, but the stated assumptions in the game's economic model is that there are no monopolistic forces. How would you go about adding them anyways?

Furthermore, what makes you think there'd only be wage increases to productivity if there's full employment? As I said before, how many peasants there are is totally irrelevant. Industry wages are competing with peasant wages, sure, but they're also competing with their own industry wages. A firm in the more productive industry can't just outcompete the peasant farms, they also have to outcompete their identical competitors in their own industry, which have the same exact amount of profit margin with which to compete. That equality means that both will have to raise wages to keep running and generating a profit for their own capitalists. Whether there's some starving peasant that's willing to take £0.1/week does not matter, because if one firm tries to employ someone at that amount, their competitors will just outbid them.

Pops are paid according to the highest bidding competitor in their respective industries, not those of the lowest competitor in your entire economy.

 

[maxirage]

Real life industries engage in wage competition to attract quality talents, as employing better workers gives you an advantage over competitors. This does not exist in V3, where starving peasants are secretly skilled engineers and no difference in quality exists. The supply of ultra-skilled peasants far outstrips demand, which pushes wages down. It's simple supply and demand.

 

[Larkh]

In short, we need some way of modelling that as the economy grows wages do also rise and short of a complex labor negotiation and wage pressures system (which would be cool but far beyond the scope for a post-release patch) I think this is the best way to go about it - a building will still allow workers to radicalize if they don't think they have good enough profit margins to raise wages, mind (or if they just don't care because the workers are discriminated colonial subjects).

All of your answers are really reassuring ! Perhaps it will still need improvements afterward, but it seems way better than what is actually going on! Thank you for your answers

 

[Xeorm]

Of course not, but the stated assumptions in the game's economic model is that there are no monopolistic forces. How would you go about adding them anyways?

Furthermore, what makes you think there'd only be wage increases to productivity if there's full employment? As I said before, how many peasants there are is totally irrelevant. Industry wages are competing with peasant wages, sure, but they're also competing with their own industry wages. A firm in the more productive industry can't just outcompete the peasant farms, they also have to outcompete their identical competitors in their own industry, which have the same exact amount of profit margin with which to compete. That equality means that both will have to raise wages to keep running and generating a profit for their own capitalists. Whether there's some starving peasant that's willing to take £0.1/week does not matter, because if one firm tries to employ someone at that amount, their competitors will just outbid them.

Pops are paid according to the highest bidding competitor in their respective industries, not those of the lowest competitor in your entire economy.

This is the era where big factory owners regularly exploited workers through using various levers. That the game doesn't simulate it perfectly well is the point of the thread.

They are totally relevant. Firms compete with other firms for employment. If you need unskilled labor, you're competing with other firms that are trying to grab unskilled labor, no matter the industry. You only compete within an industry for workers for skills that are specific to that industry. Factory work, by and large, isn't super specialized and for the peasants entering the workforce this is very much the idea. You take unproductive peasant labor and turn it into something productive. As long as there's unskilled labor that's paying less than you, you can keep your current wages. There's no reason to think of peasants as being specific to a single industry.

 

[0watcherinthewater0]

This is the era where big factory owners regularly exploited workers through using various levers. That the game doesn't simulate it perfectly well is the point of the thread.

They are totally relevant. Firms compete with other firms for employment. If you need unskilled labor, you're competing with other firms that are trying to grab unskilled labor, no matter the industry. You only compete within an industry for workers for skills that are specific to that industry. Factory work, by and large, isn't super specialized and for the peasants entering the workforce this is very much the idea. You take unproductive peasant labor and turn it into something productive. As long as there's unskilled labor that's paying less than you, you can keep your current wages. There's no reason to think of peasants as being specific to a single industry.

imagine the following scenario. You have an economy consisting of 4 firms, and they can collectively employ a total of 20k peasants. Two of the firms share an industry with the other two, so there are two industries of two firms each. One a higher productivity one and one a lower productivity ones.

Imagine also an infinitely large pool of peasants in subsistence farms making 1% of the productivity of the larger industry.

To get workers, each of the 4 firms will set the lowest wage possible, but that’s still higher than the wage provided by subsistence, let’s say it’s 1% higher. Wages will be low, and each firm employs 5k people.

This is where your train of logic ends.

Continuing the scenario though, now one of the firms in each industry, realize that if they raise their wages by 1% over their identicial competitor in the same industry, all the workforce will shift to them, because of their higher wages, so they do that. One of the firms in each industry now has 10k employees and 2% higher wages than the subsistence farms. The other has zero. Not wanting to have zero employees, they raise wages to +3%, and now each of those firms has all 10k employees. The other firms retaliate. This bidding war continues until the firms start losing money by raising wages any further, and employment equalizes to 5k to each firm again.

This is the kind of competition that ensures that, so long as no firm has monopsony power over the market, wages will track productivity, regardless of how many peasants there are.

As you say though, the current model may not accurately represent the extent of monopsony present in this era. What extent is accurate?

Diving into 19th century census data for the US, It seems like their impact existed, but wasn’t massive. In 1890, for example, profit margins, which I’m using as a proxy for market concentration, across all industries, were around 13.8%. Assuming an average rate of profit of maybe 7-10% in a perfect competition scenario, that’s an increase, but not a huge one.

It’s certainly not so extreme a difference that lower class pops see no SoL increases unless they’re literally starting a revolution, which seems to be some people’s suggested fix here.

 

[0watcherinthewater0]

There are changes to this coming in 1.1 - buildings will only raise wages to prevent major worker radicalization or when trying to compete for labor rather than just going 'we made a bigger profit, everyone gets a raise!'

Correct me if I’m wrong, but don’t buildings represent industries, rather than individual firms?

On the industry level, assuming a fairly competitive markets, a larger profit will lead to higher wages, as individual firms in the industry compete to attract the most workers.

And looking at things from an empirical, rather than theoretical lens, we see a highly correlative relationship between wages and worker productivity, even in the game’s time period. Firms don’t just raise wages whenever their employees are about to start a revolution. ESoL should have no impact on the wage someone taxes except in a total monopsony scenario, which if buildings represent industries, is never the case.

This change seems like a step backwards in regards to trying to accurately simulate wage markets. What we have in 1.0.6, while perhaps unintuitive, seems more accurate to reality, though of course not perfectly so.

 

[toxicgrunt]

Continuing the scenario though, now one of the firms in each industry, realize that if they raise their wages by 1% over their identicial competitor in the same industry, all the workforce will shift to them, because of their higher wages, so they do that. One of the firms in each industry now has 10k employees and 2% higher wages than the subsistence farms. The other has zero. Not wanting to have zero employees, they raise wages to +3%, and now each of those firms has all 10k employees. The other firms retaliate. This bidding war continues until the firms start losing money by raising wages any further, and employment equalizes to 5k to each firm again.

Except this doesn't actually happen because larger firms in the Victorian era never pay the same wages as smaller firms, they actually pay less than smaller firms because the workers are less skilled, even in the same industry. The low wages of large firms is such a common occurrence there's plenty of people trying to figure out the exact reason behind it. Also, any growth in employment of facility would not necessarily detriment the growth of another facility in the same industry, the industry would simply grow to eat into the unlimited population, which is your job as the aforementioned "Spirit of the Nation". We know wages in the industry didn't affect each other too much because the disparity in wages was huge.

It’s certainly not so extreme a difference that lower class pops see no SoL increases unless they’re literally starting a revolution

Except this literally is what did happen and worse, as labor revolts arose all over Europe in the time period. Wages getting raised by strikes and labor revolts, not by businesses trying to cannibalize each other. Because of course they didn't cannibalize each other, they grew themselves, eating into the boundless peasents, and lowering wages the bigger the firm got and the less skilled the laborers got.

What your describing is like some idealistic economy without peasants that you would read about in The Fountainhead or something, it just didn't happen. The reality is capitalists did not raise wages to expand their workforce, they expanded their workforce so they could lower wages. This is hyper-relevant in the Victorian era.

 

[BPZ1941]

Continuing the scenario though, now one of the firms in each industry, realize that if they raise their wages by 1% over their identicial competitor in the same industry, all the workforce will shift to them, because of their higher wages, so they do that. One of the firms in each industry now has 10k employees and 2% higher wages than the subsistence farms. The other has zero. Not wanting to have zero employees, they raise wages to +3%, and now each of those firms has all 10k employees. The other firms retaliate. This bidding war continues until the firms start losing money by raising wages any further, and employment equalizes to 5k to each firm again.

What point do you think you're making? If there are 4 firms, all below maximum employment, with no further labor available that is a labor demand that exceeds supply, and wages rise as a result of it - assuming the firms are productive enough to fund it. But that doesn't prove any of your ideas regarding markets or how wages are supposedly decided.

 

[0watcherinthewater0]

What point do you think you're making? If there are 4 firms, all below maximum employment, with no further labor available that is a labor demand that exceeds supply, and wages rise as a result of it - assuming the firms are productive enough to fund it. But that doesn't prove any of your ideas regarding markets or how wages are supposedly decided.

The 4 firms are all at max employment, with a large peasant population not employed by them at all. You totally misunderstood the scenario.

All a high supply of labor does is lower the average productivity, it will not lead to an unchanged productivity but lower wages.

 

[BPZ1941]

The 4 firms are all at max employment, with a large peasant population not employed by them at all. You totally misunderstood the scenario.

But your first assertion is that one of the two 5k firms in a category raises wages to employ 10k. But short of buying out the second industry there is no way they can employ 10k in the first place, so there's no need for them or any of their competitors to raise wages. Unless they all can employ 10k, in which case there is a labor shortage.

 

[0watcherinthewater0]

But your first assertion is that one of the two 5k firms in a category raises wages to employ 10k. But short of buying out the second industry there is no way they can employ 10k in the first place, so there's no need for them or any of their competitors to raise wages. Unless they all can employ 10k, in which case there is a labor shortage.

Any individual firm’s (which I must emphasize are totally imaginary and are just meant to help explain an unintuitive mechanic) max employment is the max employment of the entire industry. The building level in any particular state represents the available capital any particular firm has that they can use to create jobs.

if one firm’s employing the maximum number of people an industry can have, there’s no capital left for the other firm to employ anyone. In this scenario, capital shifts based on a firm’s employment share of the total industry.

 

[Haresus]

Nobody wants buildings to work like monopolies, but nobody should want buildings to work like some tortured ideal version of capitalism where all firms give their work space to the firm that pays the highest wages.

The changes mentioned by Wiz are a step in the right direction.

 

[0watcherinthewater0]

Nobody wants buildings to work like monopolies, but nobody should want buildings to work like some tortured ideal version of capitalism where all firms give their work space to the firm that pays the highest wages.

The changes mentioned by Wiz are a step in the right direction.

The current system doesn’t even represent an ideal version of capitalism. Profit margins can be quite large, instead of just being 0 like they would be under totally perfect, ideal competition.

With how current mechanics work, you get the general correlation between productivity and wages we see in real life, which is important to have, while also simulating some uncompetitive aspects that pop up in markets. In my opinion, that’s way better than turning every building into a monopoly and ahistorically suppressing standard of living, which is an incredibly radical solution to what’s a pretty minor problem.

a better change, in my opinion be adding some more opportunities for monopolies under the current system (maybe through events?), rather than making monopolies the default for all buildings.

 

[Aloraand]

imagine the following scenario. You have an economy consisting of 4 firms, and they can collectively employ a total of 20k peasants. Two of the firms share an industry with the other two, so there are two industries of two firms each. One a higher productivity one and one a lower productivity ones.

Imagine also an infinitely large pool of peasants in subsistence farms making 1% of the productivity of the larger industry.

To get workers, each of the 4 firms will set the lowest wage possible, but that’s still higher than the wage provided by subsistence, let’s say it’s 1% higher. Wages will be low, and each firm employs 5k people.

This is where your train of logic ends.

Continuing the scenario though, now one of the firms in each industry, realize that if they raise their wages by 1% over their identicial competitor in the same industry, all the workforce will shift to them, because of their higher wages, so they do that. One of the firms in each industry now has 10k employees and 2% higher wages than the subsistence farms. The other has zero. Not wanting to have zero employees, they raise wages to +3%, and now each of those firms has all 10k employees. The other firms retaliate. This bidding war continues until the firms start losing money by raising wages any further, and employment equalizes to 5k to each firm again.

This is the kind of competition that ensures that, so long as no firm has monopsony power over the market, wages will track productivity, regardless of how many peasants there are.

As you say though, the current model may not accurately represent the extent of monopsony present in this era. What extent is accurate?

Diving into 19th century census data for the US, It seems like their impact existed, but wasn’t massive. In 1890, for example, profit margins, which I’m using as a proxy for market concentration, across all industries, were around 13.8%. Assuming an average rate of profit of maybe 7-10% in a perfect competition scenario, that’s an increase, but not a huge one.

It’s certainly not so extreme a difference that lower class pops see no SoL increases unless they’re literally starting a revolution, which seems to be some people’s suggested fix here.

Well, what if I understand that after all this competition, we are both left with less capital then in the current situation and never start competing? There isn't even an immediate gain as employing more people requires investment and raising wages decreases my immediate extracted surplus. So I have absolutely no selfish incentive to start the ultimately wasteful competition outside of a labour shortage. So this violates the axiom of rationality and does not work even in the fairytale world of free market.

 

[Mithkabob]

I've been experimenting with trying to fix the economic AI some, there seems to be quite a few variables that it's not considering in a meaningful way, hopefully they get fixed in 1.1.

Managed to at least get them to swap production methods from steel 1 to steel 2, actually build military ships in shipyards other than the ones that are on by default, and collect hardwood in states other than the ones with hardwood bonuses. Unfortunately there doesn't seem to be a way to get it to evaluate that it should change what it is producing to not build the military ships if they're being overproduced, but odds are it will build enough navy bases to use them up.

I also put in a change to the wage parameters so the businesses don't raise wages unless they need to compete for labor or have massive profits to see what impacts the 1.1 update will have on the game in general and I will say it seems pretty positive all around but that they will have a lot of rebalancing and testing for just that single change because it creates a completely different economy. Probably why it's waiting till 1.1 and wasn't included in 1.0.6.

The least expected impact of the change was that it fixes the problem with no one buying fine art.

 

[Leoreth]

How much firms pay their employees depend on market conditions - i.e. the supply of skilled labor. Skilled labor in V3 is super-abundant, meaning industries should pay minimal wages until supply dries up in the late game.

I think this point is underaddressed so far. I like the changes proposed by Wiz as an intermediate fix of the current situation, but I think the root case lies here.

In a broad sense, the way the game models qualifications makes sense, but nevertheless these rules still fail to model the labour market adequately. The major issue that I see is an element of friction. Yes, maybe it makes sense that a factory can hire a peasant to pick up a shovel and become a Labourer immediately. But I feel like the more qualified a position becomes the less believable that is. Even if a given set of Labourers can qualify to become Machinists, they still need to learn that job. Even if a given set of Machinists can qualify to become Engineers, they still need an education to get that job. Just requiring literacy seems to be too simple a proxy for this process to me, because it also requires time and institutions that can only educate a limited number of people at the same time.

Countries that have an unlimited supply of peasants should still struggle to expand their advanced industries because it takes time to put those people through the educational pipeline that turns them into the required engineers etc. That should be a constraint that is felt in the game when it really isn't at the moment.

What does that have to do with wages and profitability? Currently there essentially is no labour market because the supply is effectively endless across all qualifications. If the game decided to model wages based on supply and demand of labour, wages would be much lower, which is historically accurate for lower strata occupations, but not so much for middle and higher strata ones. I think that is the reason why paradox needs to use other rules to determine wages that rely on different attributes as a proxy for what should be decided based on the supply and demand of labour.

If the labour market was working, they could switch to such an approach and it would actually model historical wage and SOL distributions much better. But for that end occupations with qualifications above lower strata should actually be a scarce resource for any economy that is reasonably growing at its construction/investment capacity.

(Most of what I am saying applies primarily to wealthy/educated industrialising nations by the way, but that is what we are primarily discussing here I think.)

 

[Mithkabob]

I think this point is underaddressed so far. I like the changes proposed by Wiz as an intermediate fix of the current situation, but I think the root case lies here.

In a broad sense, the way the game models qualifications makes sense, but nevertheless these rules still fail to model the labour market adequately. The major issue that I see is an element of friction. Yes, maybe it makes sense that a factory can hire a peasant to pick up a shovel and become a Labourer immediately. But I feel like the more qualified a position becomes the less believable that is. Even if a given set of Labourers can qualify to become Machinists, they still need to learn that job. Even if a given set of Machinists can qualify to become Engineers, they still need an education to get that job. Just requiring literacy seems to be too simple a proxy for this process to me, because it also requires time and institutions that can only educate a limited number of people at the same time.

Countries that have an unlimited supply of peasants should still struggle to expand their advanced industries because it takes time to put those people through the educational pipeline that turns them into the required engineers etc. That should be a constraint that is felt in the game when it really isn't at the moment.

What does that have to do with wages and profitability? Currently there essentially is no labour market because the supply is effectively endless across all qualifications. If the game decided to model wages based on supply and demand of labour, wages would be much lower, which is historically accurate for lower strata occupations, but not so much for middle and higher strata ones. I think that is the reason why paradox needs to use other rules to determine wages that rely on different attributes as a proxy for what should be decided based on the supply and demand of labour.

If the labour market was working, they could switch to such an approach and it would actually model historical wage and SOL distributions much better. But for that end occupations with qualifications above lower strata should actually be a scarce resource for any economy that is reasonably growing at its construction/investment capacity.

(Most of what I am saying applies primarily to wealthy/educated industrialising nations by the way, but that is what we are primarily discussing here I think.)

Yeah, unfortunately wages are set as simple multipliers between jobs with a single base rate at each building. And it's not the peasants necessarily just turning into engineers overnight. It's because subsistence farms also have aristocrats and clergymen in them who gain the qualifications necessary to fill the jobs. Generally when you build a new factory in a state this is what happens: a few middle class employees with sufficient wealth will turn into upper class owners, aristocrats from the subsistence farms will also move over as upper class owners. Clergymen and laborers working at an existing building will transfer over into middle class or more advanced lower class jobs. Peasants will then fill in the open laborer positions at other buildings.

I think part of the problem here is that education (and some qualifications) is very wealth dependent and laborers currently get paid too much and therefore gain literacy and qualifications too fast.

I've been experimenting with that balance before I tried to tackle the AI and implement a preview of what 1.1 might look like, and it's a lot harder to adjust and get right. I'm trying to get base SoL to 6-7 instead of 8, and have peasants have real wealth of around 4-5 and have standard of living boosted +2, that way they have lower literacy but will still have a growing population.

Because of the wages always rising to get near profitability issue, I've never been sure if the lack of qualifications would result in rising wages to try to get those pops to change jobs from other buildings, I'll try to see how that performs with both mods enabled.

 

[Leoreth]

Yeah, I think individually all the rules you are describing make sense conceptually, but the system they are producing in aggregate often does not make sense from the point of view of historical expectations.

And I think you're right that wealth requirements for qualifications should also be looked at - maybe it is fine after all to introduce a change that reduces lower strata wages and this propagates through the system such that it makes higher qualifications more difficult to attain.

 

[BPZ1941]

The current system doesn’t even represent an ideal version of capitalism. Profit margins can be quite large, instead of just being 0 like they would be under totally perfect, ideal competition.

If there are 0 profits there is no surplus value being produced. In what world does that even qualify as capitalism? Without capital surplus and accumulation there isn't a source of funds for reinvesting and growing businesses short of state intervention. There is also no profit incentive to ever start any sort of business when the only thing you get is to provide startup capital and then never retrieve that investment again.

With how current mechanics work, you get the general correlation between productivity and wages we see in real life, which is important to have, while also simulating some uncompetitive aspects that pop up in markets. In my opinion, that’s way better than turning every building into a monopoly and ahistorically suppressing standard of living, which is an incredibly radical solution to what’s a pretty minor problem.

https://warwick.ac.uk/fac/soc/economics/research/centres/cage/wp474.2020.pdf

https://eml.berkeley.edu/~jsteinsson/papers/malthus.pdf

https://www.nber.org/system/files/chapters/c2486/c2486.pdf

Can you just stop? Wages aren't even close to tracking productivity for the 19th century. If that means everything has to be a monopoly, so be it. Albeit you still haven't made a consistent argument for why non-monopolistic businesses would constantly raise wages. Also, as a reminder, it is your preference for economics that leads to grossly ahistorical outcomes., which is the reason anyone is having this discussion in the first place.

a better change, in my opinion be adding some more opportunities for monopolies under the current system (maybe through events?), rather than making monopolies the default for all buildings.

Or, hear me out here, buildings could actually function close to how industrial sectors actually operated in the era, rather than an idealized reinterpretation of market mechanics that isn't even true for the modern era. I don't get how it can be so hard to understand that labor markets are fundamentally markets where prices rise when demand exceeds supply, or fall in the reversed scenario.

I think part of the problem here is that education (and some qualifications) is very wealth dependent and laborers currently get paid too much and therefore gain literacy and qualifications too fast.

This is it. I never have to worry about qualifications for anything but rich-strata pops even in a colonial state I colonized 10 years earlier. I'm not sure who taught all those people to be engineers, because it is certainly not me. Same for non-colonial states as well, pulling peasants/laborers into skilled positions is a trivial task.