@denlillaapan raised a perpetually interesting question in his post earlier today: How can wages be sustainable for employers on a sound money standard?
The problem is simple enough. If the money is appreciating, then the nominal wage rate will keep getting more expensive for the employer and workers get real prickly about taking pay cuts (hello sticky wages).
Natural Real Raises
Let's start with the simplest case, where the nominal wage is maintained. For the employee, the appreciating currency serves as a natural pay raise. The same nominal pay buys more stuff over time. For the employer, each employee becomes more expensive over time.
If the rate of appreciation is modest, this might work well enough. People get better at their jobs with more experience and typically receive raises and promotions, anyway, so they would likely justify the added real expense (especially if they're assuming more responsibilities with seniority).
What would change in this setting is starting pay. New workers would be offered lower nominal wages than experienced workers.
Term Contracts
If monetary appreciation is greater than productivity gains from experience, employers will have to find ways to reduce nominal pay over time. Let's assume away the boring case where workers just get used to the idea of falling wages.
One easy option is something we see in sports: term contracts. Maybe it will become normal to sign an employee to a three year deal at a particular wage, with an understanding that the terms will have to be renegotiated.
The employer will have a better idea of their financial situation towards the end of the term, as well as the employees productivity, and they can make an extension offer. The employee will also have a clearer picture of their outside options, which will help both sides converge to something like the right real rate of pay.
In cases of rapid monetary appreciation, employers could also negotiate lower pay on the current contract in exchange for a longer guaranteed contract. This is very common in the NFL, for instance (not because of an appreciating currency, tho).
Profit Sharing
My go-to answer for this question has generally been profit sharing arrangements. These would likely be hybrid contracts, with a base salary and an equity share of some sort.
There are several nice features of contracts like this:
- Incentive alignment: employees benefit more as the company does better
- The equity portion is self-correcting: the company's nominal labor expenses vary with its ability to pay.
- If the base salary is small, even high rates of monetary appreciation might be compensated for by human capital gains to productivity.
The downside here is largely that employees don't generally want to internalize the financial risks of a business, preferring instead a steady rate of pay at a lower average level. In this model, it would be the new employees relying more heavily on the equity share of their compensation, while being the least able to absorb the fluctuations.
Independent Contracting
The other option is that the work model we've become so accustomed to will breakdown almost entirely and most people will become independent contractors. This would require the coordination frictions that firms solve to be overcome by the productivity gains from the improved incentives of independent contracting (I find this far-fetched).
In this world, we wouldn't have bosses and employers. We would have customers and clients. There would be frequent revisions to compensation rates, as new terms are negotiate with each job, and people would experience relatively large fluctuations in pay.
I strongly doubt that most people have any interest in this situation and would accept significantly lower pay to avoid it.
My guess is that all of the above will play a role, should we make meaningful progress towards a bitcoin standard.
What do you think we'll see?
I think the concept of wagie jobs is already dying and Bitcoin may well finish it off.
It's been, what 40 years? Since the concept of working at one company for 40 years has been dead.
It's only gotten shorter and shorter since, it's been almost 20 years since the term "gig-economy" started being strewn about. That is independent contracting with the process of waging. Hybrid-waging?
AI is probably another factor in moving this way, if something isn't already automated, then the "job" there is a project in automating it, projects have finite budgets with start and end-points.
Equity fits where things have to be open ended. Equity is already what attracts talent, attracting labor isn't a far stretch at all. If that equity is ultimately priced in or yields Bitcoin, and the company is growing/profitable, comp is purchasing-power-accretive and ultimately denominated in equity as a currency with a free-floating rate against Bitcoin.
This should also accelerate the death of zombie companies through more efficient price discovery, shrinking the wage balance in the economy even further.
Reality today is waging already pays less every year, even what are considered generous raises by most standards don't keep up with inflation. Labor depreciates faster than the currency, people blame fiat when looking at wages vs house prices, but same is true of wages vs. gold since at least post-industrialization.
It's a question of standard of living for workers, if the economy provides increasing standards of living even while their pay goes down in nominal terms, that's an improvement over what's already accepted. People that can't get over the nominal framework would then accept shares at the risk of getting diluted as they do now.
The only part of that story I think you're underestimating is just how strongly people prefer to have a defined pay schedule. The reason wages would persist is labor offering itself at a steep discount to productivity.
The share of wage laborers should decline as other models offer higher average compensation, but the most risk averse workers could still end up with wage arrangements.
This is one of the arguments that a mainstream economist brought up against me when I was explaining bitcoin (#998456)
To be honest, I think the concern is probably overblown.
As with anything in economics, there are two sides to the coin.
Currently, employees bear the risk of inflation through nominally rigid wage contracts. In fact, a large part of the anxiety the regular person feels is their need to constantly fight for wage increases to keep up with inflation. In this world, employees fight for wage increases, and firms either give it to them, or employees stay and fall behind, or they leave.
Would it really be so bad if employers bore the risk of deflation through nominally rigid wage contracts instead? It's hard for us to envision because it's not the norm, but I don't know if there's anything fundamental that says it couldn't be the norm. In this world, firms fight for wage decreases, and employees either accept them or not, and if they don't accept them they leave. Or the firm just gives in and keeps wages rigid while accepting less profit or making other adjustments on the margin.
I also think it's overblown. Sticky wages were a friction on the gold standard, but I haven't seen evidence that they were actually a huge problem.
One issue with employers assuming that risk now is that it's more difficult to fire employees, so it might lead to more reluctance in hiring. I've heard that's a fairly large friction in European labor markets.
I'm almost certain that under a frictionless competitive model you'd be able to derive some kind of equivalence result, similar to equivalence of tax incidence in competitive markets.
Aren't labor protections asymmetric? What would be the equivalent on the other side?
I just woke up, so maybe my brain is missing something obvious.
I think I meant that absent artificial frictions like labor protections, the impacts would be symmetric.
But even with labor protections, I imagine that some kind of equivalence would still result under rational expectations models. I don't think it's obvious, it's more like my intuition tells me that only one allocation of surplus would be admissible in equilibrium
I think I see what you're getting at. Do you think differences in risk aversion between firms and workers would actually make the incidence matter?
yes I can see that too. if utility is not linearly transferable then my guess is you'd lose equivalence
There's lots of handwaving nonsense in econ literature claiming nominal rigidities are natural, just part of the world. Natural. Even desirable on some psychological level
I'm not familiar with the empirical case for sticky wages at the end of the 19th century. Is it bunk?
What about menu costs?
Mostly. But I haven't looked into it deeply.
Quantity, piecemeal work etc, was more of a concern than the exact hourly/daily remuneration.
I know the right places to go research this, tho. (But the book I have in mind is like $100)
Might be interesting to read about the Bullion Slump in the early 19th century: The gold standard meets technological shifts affecting labor in a big way.
I don't really know anything about it (yet), but that came up as an example when I searched for any longer deflationary periods in history.
It would be interesting. Perhaps @denlillaapan already has something to share about that.
As an independent contractor that is still owed a couple whole coins from a contract that was set a couple of years ago and delivered late 2024, I don't recommend doing BTC-denominated long-term contracts, for now, unless you're doing business with a counterparty that has more income denominated in sats than you are owed.
For small contracts, the volatility can still be brutal, but the impact is smaller and easier to negotiate.
That makes sense. Also, for now, I don't believe the bitcoin denomination would hold up in court.
If there were significant appreciation, they could probably get away with paying at the initial exchange rate, so you also need to have a lot of trust in your counterpart.
Depends on the jurisdiction. Though the ones that uphold foreign denominations that I personally have experience in ban Bitcoin denominated contracts, so I can't say I've gone through that motion. Worse, in the case I mention above, all Bitcoin contracts are extralegal: you can't turn to the courts.
Yes. In my case, they paid all milestones during price depreciation, just not the last one after significant appreciation and aren't willing to negotiate, or at this point, respond to me at all. In my mind I have written it off.
That sucks. I can't even imagine how bitter I'd be about that situation. I'm still holding a grudge about someone not paying me $75 twenty years ago.
Why would that be? I'm only familiar with silver and gold denominated contracts, in this context. Those are considered legally binding in America, although the obligation to make the payments in the specified media is not.
I'm often very forgiving, but in this case I'm not. Also because it actually hurt me, a lot.
Note that I am not in the US. Without doxxing too deeply, there are a couple smaller jurisdictions on the planet that simply declared Bitcoin (or well, "crypto") extralegal by saying: do whatever you want, but by doing so you're not operating within the legal system, so don't come running to the court if you have a problem. That's pretty much what that law says. Unfortunately, that's where my client is domiciled, and more unfortunately, that law was introduced during the project, but before I started on this last unpaid milestone. I do think that there is an opportunistic component to this, but I will hold a grudge even if that isn't so.
I really like this idea! I think this a better idea than minimum wage.
Minimum wages would be especially disastrous in a sound money economy
I think you mean real here...?
I don't think that's boring at all, and might be the most important sociological shift coming fr sound money: death to nominal rigidity!
Yeah, agreed... Totally defeats the purpose of being an employee, turning them into shareholders. Incentive-aligning workers is efficient and attractive from an economist's point of view but probably too risky for the ordinary guy.
Great write-up!
I meant nominal but I see why that was confusing. The real cost of the nominal wage increases, so the same nominal wage is more expensive in real terms. This is why I leave talking about money stuff to te pros. ;)
It's also attractive to more established workers in a firm, because they can have more impact on profitability and have already achieved a level of financial security.
The reason it might take hold with new hires is just that they often have to take what they can get and AI might create an environment where lots of low-skill people are in the same pool for relatively few jobs.
It's exactly what we'd expect from homo economicus and requires no convoluted compensation structures.
I suspect wages would simply get repriced more often.
Today people expect the number on their paycheck to go up over time because the money itself loses purchasing power. Under a bitcoin standard, keeping the same nominal wage for years might feel just as strange as taking a nominal pay cut feels today.
Shorter review cycles and contracts could probably solve a lot of the psychological “sticky wage” problem without radically changing how employment works.
Maybe so, but supposedly employees really didn't like this state of affairs in the late 19th century.
That's a fair point. I think the hard part may be less the economics and more getting people comfortable with seeing the nominal number go down, even if purchasing power stays the same or improves.
That probably wouldn't change overnight.