The Fruits of Civilization (52-1-1) Company Size Wage Discrepancy

 Company Size Wage Discrepancy

Although the rise in CEO pay over past decades has been spectacular, it can hardly explain the rise in aggregate wage inequality. ~ Swiss economist Holger Mueller et al

In 2011, the best-paid 1% of American workers earned 191% more in real (inflation-adjusted) income than they did in 1980. Meanwhile, wages of the middle-5th fell by 5%. This selfsame trend occurred worldwide, despite widely varying policies on taxation, corporate pay, and minimum wage.

Larger firms exhibit significantly more pay inequality. ~ American economist Paige Ouimet et al

The driver of this trend is the oligopolization that naturally occurs as market economies mature. As firms get larger and become more profitable, wages rise; but the benefits of scale are not shared equally. This is illustrated by the fact that the 3 richest Americans – Jeff Bezos, Bill Gates, and Warren Buffett – own as much wealth as the bottom half of the US population.

The correlation between growth in company size and level of wage inequality holds across the rich world but has been most apparent in American and British corporations, where the number of workers employed in the country’s 100 largest firms rose by 53% and 44% respectively 1986–2010. As the trend toward bigger companies is only likely to accelerate, so too wage inequality.

The concentration of extreme wealth at the top is not a sign of a thriving economy, but a symptom of a system that is failing hardworking people. ~ English sociologist Mark Goldring

For much of the 20th century, workers at big American companies were better paid than those at small ones; no longer. Since the late 1980s, the pay advantage of working for a large corporation vanished, except for those relative few in high-salary jobs. That change fueled the rise of income inequality.

2 things changed. 1st, many low-level jobs were outsourced in the 1990s as companies more intently focused on rewarding stock shareholders. Contractors paid their workers less than the jobs lost. 2nd, less competition among corporate behemoths meant that they could get away with paying lower wages than they would have to in a more competitive market.

Economists used to mistakenly believe that companies that could afford to pay higher wages would. That fiction died as the hard numbers of reality rolled over them.

From 2016 into 2018, American corporations were rolling in profits. The economy was ostensibly near full employment, and there were millions of job openings. Despite demand exceeding supply, wages remained stagnant, as workers made no demands for raises.

The Great Recession scarred the psyche of employers and workers alike. Businesses maintained the survival mode mind-set they had acquired in the mire of the recession; as did workers, who had been so traumatized by layoffs, foreclosures, and pulverized life savings that they were meekly accepting, and holding onto, whatever jobs they could find.

Increased market concentration, particularly pronounced in the US and UK, means less competition for workers, and therefore little pressure to give raises. This is especially true in industries where skills are highly specialized, because it is harder for workers to find better pay elsewhere. Companies commonly collude to keep wages low by agreeing not to poach each other’s workers and through non-compete contracts.

The lack of money is the root of all evil. ~ Mark Twain