Does a well paid boss = lower paid underlings?
Executive pay rarely seems to be out of the news, the latest being the news that David Harding was the leading earner in the City, taking home a whopping £60 million last year.
Such stories are often accompanied by the belief that income inequality is bad for employees at those companies, with the executives sucking in money and thus diluting the pay awarded to employees. This is the thesis put forward by a new book on how Washington basically screwed the middle classes in favour of making the rich, richer. It's a familiar story that has been used extensively during the past few years, and will no doubt be used extensively again now that Labour have a new leader and can begin their opposition in earnest.
Does the evidence support this theory that large companies stifle employee salaries though? Research published in 1999 suggests the exact opposite however.
The fact that large employers pay higher wages than small employers has long been recognised as an important component of the variation in worker wages.This phenomenon was first documented by Moore (1911) and later confirmed by King (1923), Mellow (1982), Oi (1983), and Brown and Medoff (1989) among others.
The Troske paper also argues:
Davis and Haltiwanger (1991) show that the gap in real hourly wages between production workers in plants with 20 to 49 employees and production workers in plants with more than 5,000 employees increased by 79% between 1963 and 1986, and that the gap for nonproduction workers in these same plants increased by 49% over this period.
Bankers and other executives have been painted as villains of the latest financial crisis, but whilst their behaviour has been far from perfect hopefully this research shows that their presence at the top of the income tree does little to diminish the earnings of those lower down.
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