Getting a better-paying job may not be as tricky as you think. You don’t need to change careers or upgrade your skills. You just need to join a “superfirm,” the kind of company that doles out higher wages not just to its executives but to all employees.
They really are out there, these high-profit, high-pay superfirms. Clocking in as a receptionist at a budding tech company may earn you more than an engineer in a struggling sector.
This isn’t some rare occurrence, either. Recent research suggests that the pay gap between companies is a fundamental driver of income inequality, perhaps more important than the in-house divide between worker and CEO.
Which means that if we want to reduce inequality in the future, we may have to address the forces that are creating superfirms, to somehow narrow the gap between average companies with stagnant payrolls and those that give overstuffed paychecks to executives and secretaries.
Seek the right company, not the right career
A generation ago, the size of your paycheck was largely determined by your choice of career. That one decision fixed your earnings in a relatively narrow range, whether you joined a manufacturing union, became a typist, or opted for a medical degree.
These days, however, your salary depends — to a growing degree — not just on skills and specialty but also on which company you end up working for.
Since 1980, there’s been a dramatic increase in what’s called between-firm inequality, meaning that the “if only I had stayed in school” regret has morphed into something more like “if only I had landed that job with our more successful competitor.”
Putting exact numbers on this shift gets pretty technical pretty quickly, but even without getting into the change in variance and log earnings, the basic picture is clear. Over the last 30 years, pay differences between high-earning and low-earning employees in the same firm haven’t actually gone up that much — barely at all in firms with less than 10,000 people, according to one of the most-cited studies in this field.
Meanwhile, the pay gap between firms has shot up. And that has big implications. Among other things, it suggests that the overall rise in US inequality isn’t about the pay gap between you and your boss — it’s about you and your peers in other companies.
Connect this pattern with the fate of the top 10 percent of earners nationwide and you can get a sense for how far-reaching it is. While it’s true that those high earners have indeed been pulling away from the rest of Americans, they haven’t actually been pulling away from their colleagues. Average workers lucky enough to be employed by the same companies where the top 10 percent toil have actually seen their wages go up right in line with these high-earning executives.
Inequality? That’s for people in other companies.
Meet the superfirm
Who are these superfirms, the ones paying big bucks to workers up and down the organization? They often go unidentified in the research — anonymity being part of the deal economists accept in order to get their hands on information about your paycheck. But they seem to be especially common in health care and technology, so think big Silicon Valley firms, pharmaceutical companies, and powerful hospitals, not to mention titans of finance.
But just listing companies with the most extravagant pay wouldn’t get you very far. It’s not about a handful of well-known brands; between-firm inequality is a structural issue, which can be tracked across the business landscape.
The birth of the modern superfirm seems to be tied up with a decrease in vibrant competition throughout the US economy.
Look at virtually any industry and you’ll find that a growing share of the market is controlled by a smaller number of players. The results are sometimes quite dramatic. According to one analysis from researchers at MIT, Harvard, and the University of Zurich, the top four manufacturing firms control 43 percent of US sales; the top four retail trade firms control 30 percent.
Concentration like this can create real economic distortions, leaving a few firms with outsized power to set prices, buy up potential competitors, and lobby politicians for special protection — thus racking up big profits, some of which get shared with their fortunate employees.
Ideally, markets would correct for this over time, allowing hungry competitors to make inroads by copying the best business strategies and improving on the worst. But some research suggests that this copy-and-improve process has stalled in recent years, possibly because superfirms have figured out how to lock in their advantage using patents and power-expanding mergers.
Breaking the hold of superfirms, and restoring competition to US markets, might thus require a more forceful intervention. Like the return of vigorous antitrust regulations, newly-sharpened not just to block risky mergers, but also to break up companies deemed too powerful. It’s a longshot, since anti-trust enforcement remains at a low ebb, but it’s become a more common rallying cry among left-leaning advocates and economists.
Could high-paying superfirms be bad for workers?
If you can make it through the interview process, life at a superfirm probably seems pretty sweet. It’s like being in a fishing competition where you get exclusive use of the company trawler. Not only do your firm’s higher profits translate into better pay, but the lack of competition probably means increased job security — since the company won’t be going out of business any time soon.
That just leaves everyone else — all those similarly-talented workers earning less because they happen to work elsewhere. They’re caught on the lean side of a massively-important but often-overlooked economic divide, the one that increasingly separates the superfirms from the rest.
They are the 99 percent, not because they chose a dying career or failed to get their education, but because they ended up with the wrong boss at the wrong company.
And while there’s no easy solution, one fix is to return to the business-dissolving, market-fracturing policies that have fallen out of favor but which played such a high-profile, trust-busting role in the 20th century’s fight against inequality.