Speculating about bitcoin-standard wages
@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?
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