I would like to distinguish between two forms of pay inequality:
a) some people are bad at understanding money and/or suck at negotiation, so they are willing to work for a fraction of the money they could actually get if they only asked for a raise. The money they leave on the table can be distributed between their employer and some of their colleagues. With pay transparency, they could finally learn their market price. (Conclusion: pay transparency is good for autists.)
b) some people are superstars and there is a good reason why the employers are happy to pay them more than they pay the average muggles. But humans are jealous, and pay transparency ruins this for everyone, because the muggles won’t get paid as much as the superstar gets, the superstar will leave the company if their high salary is threatened, and the muggles will create an unpleasant working environment for the superstar if nothing is changed. (Conclusion: pay transparency is bad for superstars.)
Everyone seems to automatically assume that pay inequality is the latter, when in fact it could be both. Actually, both can happen at the same time at the same company.
The model says that within a business, once they have taken the job, people care deeply about relative pay.
Yeah, I assume that most people are like that, but do they really care about the relative pay qua status marker, or is the relative pay simply their proxy for what they could make in a different company?
A rational agent with a lot of free time would keep applying to different jobs, just to get the idea of what is their market price. But many people just follow their intuition, and procrastinate on job market research. Knowing that my colleagues make more money can be a wake-up call that maybe my intuition was wrong, and maybe the money my colleagues make is actually the market salary for my kind of job.
I would like to distinguish between two forms of pay inequality:
a) some people are bad at understanding money and/or suck at negotiation, so they are willing to work for a fraction of the money they could actually get if they only asked for a raise. The money they leave on the table can be distributed between their employer and some of their colleagues. With pay transparency, they could finally learn their market price. (Conclusion: pay transparency is good for autists.)
b) some people are superstars and there is a good reason why the employers are happy to pay them more than they pay the average muggles. But humans are jealous, and pay transparency ruins this for everyone, because the muggles won’t get paid as much as the superstar gets, the superstar will leave the company if their high salary is threatened, and the muggles will create an unpleasant working environment for the superstar if nothing is changed. (Conclusion: pay transparency is bad for superstars.)
Everyone seems to automatically assume that pay inequality is the latter, when in fact it could be both. Actually, both can happen at the same time at the same company.
Yeah, I assume that most people are like that, but do they really care about the relative pay qua status marker, or is the relative pay simply their proxy for what they could make in a different company?
A rational agent with a lot of free time would keep applying to different jobs, just to get the idea of what is their market price. But many people just follow their intuition, and procrastinate on job market research. Knowing that my colleagues make more money can be a wake-up call that maybe my intuition was wrong, and maybe the money my colleagues make is actually the market salary for my kind of job.