2015 December 12 Saturday
Pay Diffs have grown Inter-firm, not Intra-firm

Some economists think that claimed growing wage differences between top executives and lower ranks are a myth. Within each firm wage differences haven't grown. The big growth in wage differences has happened between firms.

There are several potential explanations for these findings. One possibility is increased sorting: that is, perhaps, in the 1980s firms were employing workers from a broader set of skill levels but have become increasingly specialized over time, so that now firms employ workers from narrower skills groups. Therefore, some firms pay much higher average wages than before because their average worker quality has increased. And vice versa for firms that are now paying lower than before.2

A second potential explanation (which is not necessarily mutually exclusive with the first one) is growing productivity differentials across firms

My guess is there is much more cognitive sorting between firms. The smartest are getting concentrated into firms that do not hire so many people at lower cognitive levels. Look at the decrease in manual labor at manufacturing firms. Robots do more of the manufacturing and other work is done in less developed countries.

Even more, look at the software firms. They have much higher salaries for most of their workers and very few lower skilled workers. They outsource janitorial, building maintenance, and kitchen work. Also, the ranks of secretaries have been decimated by computer word processors, email, and other office automation software.

Is this useful knowledge? I suspect so. What to do about it? Switch to firms that pay more. Develop skills that will get you in the door at higher paying firms. Apply for jobs at places far from you if the local firms do not pay well.

Share |      By Randall Parker at 2015 December 12 07:25 PM 


Comments
Bill said at December 13, 2015 11:31 AM:

They're following the lead of Google, whose policy it was to never hire anyone who wasn't best-possible university educated and very bright indeed. You may recall reading that, in addition to their CV, Google made every interviewee take a thinly disguised IQ test as well. Google used to throw an annual party for SEO people called the Google Dance, and many of their employees attended. Over the years I probably talked one-to-one with a hundred of these people, many of them first-level employees, and I can tell you that there wasn't one dim bulb on the marquee.

Brett Bellmore said at December 14, 2015 3:03 AM:

"Switch to firms that pay more. Develop skills that will get you in the door at higher paying firms. Apply for jobs at places far from you if the local firms do not pay well."

Was this ever not good advice?


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