I have just attended two fascinating sessions at TechNL’s innovation week (#IWNL23), both of which dealt with talent and employment, from the perspectives of employers and of job seekers (i.e. not from an academic perspective).
Remuneration is a function of where you live (and social class, gender, networks?) – not productivity
One important question – particularly important for small towns in Canada – is remote work. This does not mean working a few days a week from home, but living in another jurisdiction and being employed by a small-town firm.
Although there is some debate amongst employers, the prevailing attitude seems to be that, for the same job, a higher remuneration will be paid to people living in high-cost environments.
So: identical job, identical contribution to the company, different remuneration based on where you live.
This phenomenon is not new: feminist scholars have pointed out that women have often been paid less for jobs identical to those occupied by men (though this is not the sole contributing factor to the current wage gap).
Barbara Wootton, a British economist active in the 1930s, 40s and 50s, wrote a report called The Social Foundations of Wage Policy, in which she shows that wages for an occupation were not associated with productivity, but with the social class and gender of people who typically occupy those jobs.
More recently, in 2021, Jake Rosenfeld published the ironically titled book You’re paid what you’re worth in which he painstakingly deconstructs the idea that there is any relationship between individual productivity and remuneration. One of the fundamental reasons he invokes is that value-creation is a social process: therefore the apportionment of value to individuals will always be arbitrary.
Michael Sandel, in The Tyranny of Merit, makes similar points in a more general way: if meritocracy is a myth, then on what basis are remuneration levels set?
Companies seem to have jettisoned the pretense that remuneration is based on productivity…
What is interesting about the geographic discrimination discussed during Innovation Week is that companies are now explicit about the fact remuneration is not linked to productivity or merit : they are happy to say it’s linked to where you live (though the authors just cited suggest it may also be linked to gender, social class, race, personal network, university attended…).
The pretense that remuneration reflects what one contributes to the firm, or, more widely, to society, has been jettisoned.
Or has it? It has been jettisoned when it suits employers, but is also retained when it suits them. Confusingly, wages are still claimed to be set by (impartial) markets, yet those markets are segmented at will – by geography (as we have seen), but also along the other dimensions mentioned above.
If this sounds confusing, it’s because there IS confusion. The rationale behind remuneration levels is claimed (and often believed) to be merit, yet most research – and occasionally companies themselves – show that it isn’t.
…except for high income earners
Financiers, CEOs and other multi-millionaires, however, like to maintain the fiction that their remuneration reflects market “worth”. There is little attempt to qualifiy this, nor to point out that the notion of “worth” (i.e. of an individual’s contribution to value creation) is problematic. When we hear a claim that their remuneration is set by markets, and hence deserved, the question is: which market? who sets the terms of that market?
The “market” terms for highly remunerated occupations are usually set by the very classes and business networks that benefit from these higher remuneration .
Likewise, the “market” terms for lower paying jobs …. are also set by the social classes and business networks that enjoy higher remuneration (and that benefit from low remuneration elsewhere in the economy).
So, are financiers, corporate lawyers and CEOs paid what they are worth? Probably not, unless you accept their own estimation of their value.
And are janitors, teachers and nurses paid what they are worth? Probably not, unless you accept what financiers, corporate lawyers and CEOs think they’re worth!
Richard Shearmur 