gpowell,
I do know of situations where equally productive identical employees have been paid on different scales. The major airlines in the 80's instituted a lower pay wage scale for new employees, whereby their wages were permanently lower. This couldn't have been done without the consent of the unions.
I believe that the biggest mistake in trying to tie wages to productivity is concentrating on individual worker productivity. This probably only makes sense for simple jobs that could almost be compensated as piece work.
As I believe you alluded to before, almost all employment today is far too complex to relate individual productivity to marginal value product or marginal revenue.
A company's revenue is ultimately connected to the degree to which consumers are willing to buy its products and with the degree of competition, both real and potential. Most products are produced on a schedule, requiring the coordination of massive amounts and types of both labor and other factors of production. The fact that allowances for normal fluctuations of supply need to be taken into account means that variations of individual detailed productivity rates do not have much effect on total output, but rather control the amount of slack time present.
It is the wide variations in company revenue and profits, both in total and per worker, that really give rise to substantial inter-company wage variations.
See my previous response to Wildstar for the mechanism which I believe brings this about through competition for workers with intangible advantages.
In addition to the investment component of wages that I referred to, there is also a pseudo-insurance component that will tend to produce wage variations.
One possible intangible factor that separates employees is an error rate. When job interviews take place, it is not unreasonable to be able to at least somewhat predict differences in employees in terms of care exercised at work. If one employee screws up a full day's production every 100 days, that employee will be less desirable than one who does so every 1000 days. The significance of this in terms of wage premiums increases rapidly as company revenues increase as compared with another company. Note that while the revenue attributed to a given employee increases as the total revenue increases, it still is only a fraction of total revenue, while his screwups may be virtually unlimited in scope. Thus the potential for very costly screwups is an excellent reason for the most successful companies to bid up the wage rates of workers of higher perceived quality, even if of equal skills.
A limited reading of the literature seems to want to tie theories of wages to unemployment, but few of the theories seem successful in doing so.
They want to say that premium wages would tend to increase unemployment by raising average wages, but they can't seem to find empirical support for that. My theory of wage premiums wouldn't tend to increase unemployment since it is only a means of voluntarily allocating given workers to given companies.
They also want to explain a supposed wage rigidity over the business cycle, in that workers cannot find jobs by reducing their wage demands and wages do not seem to fall as a business cycle experiences recession.
My theory is also compatible with these effects in that job applicants ranked 8 or 9, for example, can't improve their ranking by merely being willing to work for less.
Also, average wages will tend to be prevented from falling during company layoffs, for example, because the subjective ranking process will essentially be run in reverse. It will not in general be the higher priced workers that will be let go, but rather the ones whose wages have the smallest investment component, more often the lower priced workers. If you need cash, you usually do not tend to prematurely break bank CDs first.
All of this assumes a free market in labor, and therefore is unlikely to have much to do with unions, and can be interfered with by effective minimum wages.
Regards, Don |
