It's not that simple. The employees were already working under conditions that job/person a was worth 2x and job/person b was worth 3x. That was established and everyone was content (or reasonably so).

All of a sudden, someone declared that job/person a is worth 3x too, with no corresponding change to the output or expectations of either job.

Job/Person b, having been previously told that their value was, at 3x, MORE than job/person a, is now told that their value is now equal.

That's a redefining of the previously established contract of understanding. To expect Job/person b to completely agree to that redefinition is rather naive, to say the least.

I'm more valuable to my company as their key software developer than the receptionist. I've got more knowledge of how the company works, contribute more to the bottom line and am harder to properly replace. I expect my compensation to reflect that.

If you suggest all of a sudden that I'm not any more valuable than the receptionist hired last month, you should rightly expect that I'd be a little pissed.

I couldn't afford my lifestyle if pay was a function of value; it'd cost too much. Pay is a function of how hard management believes it is to replace someone.

I think this is a misunderstanding of how companies perceive value. You could be making your company a billion dollars a year, but if any schmuck off the street could do the same you're not actually providing much value at all. Your value is the difference between what you provide and what a similar replacement worker would provide.

And my effort is also based on the cost to hire my replacement.

This is a bit nonsensical. Nobody knows better than you what your time is worth because it is your time.

You don't owe companies anything, including working for less than you are willing to take in payment.

If this is actually true, in any situation where this happens, you are being underpaid, because it implies the employer is getting more out of your employment arrangement than you are.

I know what you meant, it is just the semantics of economics are precarious and a lot of people would fight tooth and nail to be in a position to bargain for more because of a situation where an employer values the worker much more than the worker values the employer. You want equilibrium where the worker gets as much from the employer as they can, which is when employer and work both get as much out as one another.

On average, this may be true, although "how hard they are to replace" is difficult to quantify and most of the scarcity is artificial. But there is enormous variability in the relationship between pay and revenue/profits provided and opportunities for replacement. I am certainly paid much more than I should be, since I work in a cost center and in that group I am definitely not the one bringing in work or revenue, and I suspect I would be very easy to replace. But at the time the contract was signed, I had the right certifications (e.g., PhD) and the right resume. Like many others, though.

Not at all. They pay what it would cost to replace you. If someone accepted to do the same job for cheaper (or free), they'd take it, regardless of the value it generates.

That sounds like poor accounting that's overly dismissive of the outside world. If it's going to cost $X to fill the position, why is the person currently in the position worth $X (ignoring for the moment that filling the position will also often actually add a bunch of one-time costs like recruiters/interview time/signing bonuses..., but potentially also be offset by unvested bonuses/stock/whatever that the departing employee is relinquishing).

If you are in charge of salaries, and you don't pay attention to the fact that you're paying $0.7X for someone that you'd have to spend $X to replace, you've put yourself in a weak position compared to the companies who are immediately willing to pay >$0.7X for that person. The demand has already gone up, you just weren't paying attention.

An employee is like a subscription, you pay on an ongoing basis. And they can quit on you any day. Paying an employee currently and in the past doesn't necessarily mean you have no demand for their services in the future - having someone in-house who'd be happy to continue working for you is basically the best-case scenario in a role that you still demand. Don't try to exploit it by hoping they don't notice they're being shortchanged...

Assuming a replacement of equal skill, the demand to keep the position filled is the same as the demand to backfill it, because either action results in the same number of people in the same role.

If your company is profitable, they can afford to pay you more, meaning no matter how much you're paid, you're undervalued.

I just took a 20% pay-cut to go work somewhere I thought I might like. There is more to a position than the compensation package.

Who are you to say that? Is the invisible hand prescriptive now? What if I value fair treatment over marginal nominal compensation? What if I don't know how much to ask for when I'm looking for work because I'm so underpaid that my perception of the market is fucked?

They won’t pay you more in the long term. In the short term, they may be trying out candidates willing to work for cheaper. If they notice cheaper employees are available and providing the same utility, then I would bet the more expensive employees are on the chopping block.

As soon as you cost more than the value you bring, the business will lost interest in keeping you anyway.

I'd disagree. They pay me for a specific amount and type of output, the same way they would for a new piece of machinery. It's not indentured servitude; they don't own me. If they just owned me, I wouldn't charge different rates for different things. A salary doesn't change that - a salary is just your assurance of my availability.

so either you're not as important as you think you are, or you're being ripped off salary-wise. Both are reasons to move tbh.

Or you're worth what the value of your work is. There are different ways to define this.

Are things that are free automatically worthless?

The idea that you become more valuable to your old employer only once there's another employer willing to hire you, is bizarre. Your work for your old employer doesn't change. How can your value suddenly change? Your old employer was clearly underpaying you because they could afford to. Only when you get other options, are they forced to pay you what you're worth.

This is very true and certainly affects the very theoretically top limit of the job offer. But when deciding compensation the actual calculation is only remotely based on the value the employee brings your particular problem.

In practice an offer is mostly based on the employee's current market value (ie how easy it is to get someone cheaper) and how much he is currently making (ie the minimum amount I can offer and still get him to accept) and some social acumen around ability to negotiate a salary.

So yes, when you change jobs your salary is more likely to rise if an organization can use you more effectively. But it will always max out based on how easy you are to replace. This and only this is the pay you will eventually reach if you change jobs enough. And that has no connection to the value you produce but is solely connect to the number of people with your skill vs number of openings.

Ok, now I'm unemployed, then what?

Salaries are determined by how much they'd need to pay someone else to replace you. It's an auction, not something you can set yourself by being stubborn.