Your Company May Rule Your Economic Destiny

Your economic destiny may be closely linked to the company you work for, new research shows.

The wage divide has widened between workers at high-paying firms and those at low-paying companies over the past 30 yrs, a trend consistent across US regions and industries, according to the research.

That means that as Top 1% wages spiked between Ys 1982 and 2012, rising 94%, compared with a 20% gain for workers at the middle of the income distribution — the divergence did not come from Superstar CEO’s increasingly out-earning their own employees. It came as some companies distributed larger paychecks across the board and others fell behind, the authors of a new paper write.

“There’s this view out there that the main reason inequality is rising is because of super managers,” Fatih Guvenen, a University of Minnesota economist who is among the paper’s 4 co-authors, said in an interview.

The co-authors are arguing that it is the rise of the Super company that has created the inequality in pay.

It is unclear what makes a company stand-out, while others fall behind, Ms. Guvenen said. The researchers hypothesize that diverging productivity could be among the reasons. Highly skilled workers might also be concentrating at certain businesses.

“More research needs to be done to understand why inequality between firms has increased so much more than inequality within them,” according to the paper, which Social Security Administration economist Jae Song and Stanford University’s David Price and Nicholas Bloom also co-authored.

There is some variation between sectors, Ms. Guvenen said.

For instance, in manufacturing, managers are pulling away from their employees on the pay scale.

Still, in many industries, including finance and services some companies just outshine others. So much that virtually all of the income growth divergence between the top and the middle earner in the company can be explained by the inter company differences, the researchers said.

The authors note in the study that executive pay has been a major focus of inequality discussions.

They contrast their own conclusions with those of Thomas Piketty, a French economist whose best-selling book “Capital in the Twenty-First Century” suggested that the rise of “Super managers” those executives with rapidly growing pay packages  was a major contributing factor in boosting inequality. Mr. Piketty says that this paper’s findings aren’t necessarily at odds with his own.

“All these evolution’s tend to interact with each other,” he writes. “Exploding executive compensation can have an impact on the pay determination process in other segments of the labor market.”

It’s surprising that companies have played such a central role in boosting inequality, and the finding could have important policy implications, said , a research economist at the Washington Center for Equitable Growth.

“If it is the case that inter-firm inequality matters a lot, then what you want to do is make sure that there is equal opportunity in hiring practices,” Mr. Zipperer said.

The research paper used earnings data compiled by the Social Security Administration that counts wages and salaries, bonuses, exercised stock options and the Dollar value of vested restricted stock units among income.

Stay tuned…

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