Over the past few decades, the liberal democracies have experienced increases in pay inequality marked by steadily rising top-level incomes combined with stagnant wages for average workers. This rise in inequality has occurred alongside increases in productivity levels. In decades past, productivity improvements were generally spread across a wide swath of the workforce, spurred on by labor unions that helped institutionalize norms of pay allocation, patterning wages across broad industries among union and nonunion workers, and internal labor markets within firms that smoothed over changes in individual productivity over the life course. This de-coupling of productivity and earnings over the past generation represents a profound shift in how wages are allocated to workers.
This project utilizes five individual- and business establishment-level datasets on U.S., English, and Canadian workers, and has three specific objectives. The first is to estimate the causes and consequences of the collapse of union wage bargaining among remaining union members. The second objective is to document the rise of personalized pay at the workplace and measure how this wage-setting institution has exacerbated within-group inequality among union and nonunion workers. The third objective is to estimate how personalized pay practices help de-couple average wages from productivity levels. Each objective explores workplace dynamics that have widened wage gaps while de-linking average pay from productivity levels.
The project will have broad reaching social impacts in the following ways. First, the data depository made available to the public will combine establishment-level data from three different nations standardized with a common codebook, and will serve as one of the most comprehensive sources of establishment-level workplace data available. Second, the availability of establishment-level information combined with the dissemination of the results of the analyses will open up new areas of inquiry, especially for researchers interested in racial and gender discrimination at work.
While the focus of this project centers on patterns of within-group inequality and their relation to new wage-setting institutions, the analyses can be easily adapted to focus on the employer characteristics that lead to inequality between ascriptive categories. The data and analyses provided by this project will allow future researchers to explore how ascriptive categories translate into unequal economic outcomes in the contemporary era of growing employer power.
Third, the analyses proposed in this project will help illuminate debates surrounding inequality trends that extend well beyond the research community. As policymakers and public intellectuals wrangle over potential remedies for recent inequality trends, rigorous research about the causes and consequences of these much-discussed developments is crucial.
Explanations for increasing wage inequality in many advanced democracies tend to emphasize rising demands for skilled workers and the decline of collective bargaining. While important, these dominant theories overlook other important changes in the ways in which pay is allocated within the workplace. In this project we utilize multiple datasets with information on workers and their workplaces in the U.S. and Great Britain to investigate recent transformations in pay practices and their consequences for inequality trends. Our first set of objectives include documenting the prevalence of what we term personalized pay in the workplace and measuring what predicts the presence or absence of this type of wage-setting. We define personalized pay as individual-based pay determined by a company-specific performance measure. Thus, group or firm-level performance pay is excluded from this definition, as are once predominant forms of wage-setting such as seniority-based pay and pay based on job classification. Our second set of objectives involves estimating the effect of personalized pay on average wage levels and on patterns of wage-inequality within workplaces. Our third set of objectives involves documenting how transparent firms are regarding pay and financial information, and assessing what factors predict whether or not an establishment shares pay and financial information with its employees. Finally, we seek to uncover how secrecy regarding company pay practices and financial information influences inequality. Our hypothesis here is that those workers who report that their managers disseminate financial or pay-related information will receive higher hourly wages than workers who report their managers do not share such information. Key findings include the following: in our examination of U.S. workplace data, we find that personalized pay practices are less common in non-profit enterprises compared to for-profit enterprises. Also, in one of our U.S.-based investigations, we find that personalized pay is less common in unionized establishments. However, in our examination of British workplace data from 2004, we find no connection between union presence and whether or not the establishment allocates wages by individual-based performance pay. We do find that personalized pay is far less common in the public than the private sector, broadly consistent with our findings from U.S. establishments. Our U.S.-based analyses provide preliminary evidence that workplace level inequality – measured as the ratio of average managerial to average worker pay – is slightly higher in establishments with personalized pay. Turning to our investigation of pay secrecy in contemporary workplaces, drawing on existing data we find that two-thirds of U.S. workers in the private sector report being discouraged or outright prohibited by their managers from discussing wage information. We also find – here utilizing data from British establishments – that those workers who report their managers share financial information about their firm earn more on average than otherwise similar workers whose managers keep such information secret. This is a particularly robust finding that remains even after we control statistically for the effects of educational attainment, occupation, and workplace characteristics on wage rates. This project has documented the prevalence of new sources of wage inequality in workplaces in the U.S. and abroad. In future work we will broaden our examination by incorporating data from other nations and systematize our existing findings for journal publications and an eventual book.