Within-company wage gaps are larger in companies with higher labor productivity

After analyzing data from various US Census Bureau databases, a team of American university economists concluded that intra-firm wage gaps are larger in firms with higher labor productivity. A similar picture can probably be observed in the Russian Federation – most likely, high differentiation of salaries within the company is characteristic of enterprises in oil production, industry, finance and IT, although only the Social Fund and the Federal Tax Service have accurate data on this.

Companies with higher productivity are more likely to reward their employees with various bonuses – and thereby increase the intra-company wage gap in the workforce. This conclusion was reached by a group of economists from Stanford, Duke University and the US Census Bureau using data from longitudinal studies of earnings and employee outcomes in the United States. Moreover, the conclusions of their work may be partially applicable to Russia.

As the authors of the study note, over the past few decades, a number of economists have repeatedly noted the growing trend in the gap in workers’ earnings—in particular, one of Tom Piketty’s 2013 works is devoted to explaining this phenomenon. However, the question of how wage differentiation looks not in the economy as a whole, but within individual work collectives, has so far remained unexplored. To answer this, the authors of the work processed data on earnings in 50 US states collected by the Census Bureau, from 2003 to 2015, and compared them with productivity data collected by one of the bureau’s divisions, the Center for Economic Research.

On average, the earnings of employees in firms with higher labor productivity are expected to be higher, but it was in them that the level of salaries of executive employees grew faster than the average for the sample. Thus, a doubling of productivity was reflected by an increase in the earnings of mid-level workers by 9–12%, while the income of the CEO of the same company could immediately increase by 15%. According to the authors of the work, this is due to the use of an active employee incentive policy in such companies, built on a large variable part of the salary and bonuses for completing tasks based on the results of the quarter or year. At the same time, the researchers note, their results suggest that further increases in labor productivity, which most firms are now striving for, will increase wage inequality within them. Thus, the growth in labor productivity from 1980 to 2013, according to their estimates, provided a 40% increase in the wage gap between the highest paid and workers with average salaries.

The findings of American researchers may be especially interesting for the Russian labor market now – as Elena Varshavskaya, a professor at the Higher School of Business at the National Research University Higher School of Economics, notes, when competition for employees between companies has increased, the wage gap within work teams may also increase, since increases are offered only to the most necessary specialists. “In Russia, the maximum intra-company difference in salaries can most likely exist in large companies in industries such as oil production, finance and IT. There is now a demand for their services, which encourages employers to use the employee bonus scheme. Again, the larger the organization, the more likely it is that in addition to the employees who provide the main production, there are also support services with small fixed salaries,” notes Viktor Lyashok, senior researcher at the Laboratory for Research of Labor Markets and Pension Systems at INSAP RANEPA.

At the same time, says Elena Varshavskaya, “the question of what intra-company wage differentiation may be is important for understanding the mechanisms of the labor market, but its study is very limited.” “When we analyze data on wages in an industry or the economy as a whole, we can operate with statistical data, for example, those collected by Rosstat. But in order to conduct a study of salary variations within an enterprise, it is necessary to gain access to its accounting, which most companies will not allow any researchers to do,” she explains. An alternative source of information, she notes, could be anonymized data from the Social Fund or the Federal Tax Service – they collect statistics on employee salaries and can see them in relation to specific employers.

Anastasia Manuilova