Recently I wrote about the clear divide appearing between those employed at the best companies, and those employed in the laggards in their sector. It’s a level of inter-employer inequality that is increasingly common, as new research from the University of Massachusetts Amherst explains.
The study explores around 25 years worth of data, covering over 2 billion job years across 14 high-income countries across Europe, North America, Asia and the Middle East. The analysis found that inequality between workplaces was growing in 12 of the 14 countries, with Hungary and Canada the only exceptions.
The authors suggest that such inequality grows due to the powerful market positions of leading firms, who can often simultaneously outsource a large chunk of their work to temporary labor firms, subcontractors or to global supply chains. They cite companies from Amazon to Apple, Nike to Uber, as examples of such practices.
“Most strikingly, we find in 12 of the 14 countries examined that the organizational structure of production is shifting toward increasing between-workplace wage dispersion,” the research says. “In all of those 12 countries this process is more pronounced in the private sector, but we also find rising between-workplace inequality in the public sector in eight countries.”
Labor market protections
This inequality was also growing fastest in countries with weak labor market protections. When collective bargaining was widespread, and minimum wage regulations provided a strong baseline of income, the authors suggest inequality between, and indeed within, firms was reduced.
“We show that trends in rising between-workplace wage dispersion are closely aligned with declining national labor market institutions, institutions that in some countries once protected the bargaining power of employees relative to employers,” they say.
The researchers had suspected that polarization was occurring between high-wage and low-wage firms, but were nonetheless surprised at just how strong the trend was. They believe that this trend is strongly linked to the institutions that underpin the national labor market, with the United States clearly showing this connection, as they have both the weakest labor market protections and the highest levels of inequality in the 14 nations.
As such, the authors believe that if inequality is to be reduced, then a renewed focus on between-firm and workplace inequalities via mechanisms to increase the bargaining power for employees and limit the ability of firms to outsource risk while harvesting revenue.
“Strengthening institutional protections for lower-skilled workers,” they conclude, “will not only improve their wages and job security, but also reduce the ability of more powerful firms to outsource production to lower wage firms. Policies to limit the market power of dominant firms may moderate both the earnings going to the top of those firms and their ability to externalize labor costs.”
