Consolidated Advantage: New Organizational Dynamics of Wage Inequality

Nathan Wilmers and Clem Aeppli, "Consolidated Advantage: New Organizational Dynamics of Wage Inequality," Washington Center For Equitable Growth, March 2021https://equitablegrowth.org/working-papers/consolidated-advantage-new-organizational-dynamics-of-wage-inequality/

Findings explained (see two charts), “…Figure 2 shows the main results from these models. While in the one-way models both between workplace and between-occupation variance increase over time (see Figure A.8 in the appendix), in the two-way model they remain fairly steady across all years. Neither rising variance in occupation premiums nor rising variance in workplace premiums alone explains much of the increasing inequality trend. The residual variance component, a combination of workplace-specific occupation premiums and within-job inequality, does not change over time. Instead, it is the covariance that increases sharply from 1999 to 2017. The increase in covariance accounts for almost two-thirds of the total growth in inequality, whereas the small increases in variance in workplace premiums and occupation premiums account for only about 12 percent and 23 percent, respectively. Figure 3 shows that this increase in covariance is due to a rise in correlation between workplace fixed effects and occupation fixed effects, which doubles from 0.14 to 0.28 between 1999 and 2017. Workplace and occupation have become increasingly consolidate…”

Here is the dataset, “…restricted-use microdata from 1999-2017 from the Occupational Employment Statistics Survey (OES), collected by the Bureau of Labor Statistics (BLS). The OES is fielded to provide official annual estimates of occupational wages and employment levels (BLS 2008). The OES surveys around 400,000 establishments per year, sampled from the population of private and public sector workplaces.3 The survey is administered to employers, managers and human resource managers. Each respondent is asked to report all occupations employed in their establishment and to indicate the number of employees in each occupation who receive pay in each of 12 pay intervals.The data include no information about individual worker characteristicsbeyond pay, occupation and establishment information. The OES is thus useful for studying occupation- and workplace-related pay changes, but we cannot adjust for individual characteristics like education, race or gender. This limitation of the data means that the occupation and workplace premiums we estimate should be interpreted as broadly summarizing pay effects due to skill, education, and other characteristics correlated with occupation and workplace…”

In practical terms this means, "...A privatizing, low-paying mental health clinic may substitute lower-paid social workers in for psychologists...An assembly job, low in the ranking of occupation or skill, can either be similarly low in the workplace premium ranking, at a low-paying supplier, or benefit from employment at a large, unionized corporation, with pay premiums even for low-level employees..... As workers are increasingly employed in jobs matching high or low premiums across workplace and occupation, fewer workers are in jobs defined by mismatched and offsetting premiums. It is this consolidated inequality, rather than rising variance in pay premiums associated with occupation or with workplace alone, that is the dominant source of rising inequality over the last two decades...."

Core finding, “…The two main sources of inequality in the US labor market—occupation and workplace—have increasingly consolidated. Workers benefiting from employment at a high-paying workplace are increasingly those who already benefit from membership in a high-paying occupation. Drawing on occupation-by-workplace data, we show that two-thirds of the rise in wage inequality since 1999 can be accounted for not by occupation or workplace inequality alone, but by their increased consolidation. This consolidation is not attributable to firm turnover or to how occupations have shifted across a fixed set of high paying firms (as in outsourcing). Instead, consolidation has resulted from new bases of workplace pay premiums. Workplace premiums associated with teams of professionals have increased, while premiums for previously high-paid blue-collar workers have been cut. Yet the largest source of consolidation is bifurcation in the social sector, whereby some previously low-paying but high-professional share workplaces, like hospitals and schools, have deskilled their jobs, while others have raised pay. Broadly, the results demonstrate an understudied way that organizations affect wage inequality: not by directly increasing variability in workplace or occupation premiums, but by consolidating these two sources of inequality….”

What this looks like in terms of categorization, “… we divide workplaces into different groups according to their starting level of occupation and workplace premiums. We define starting groups of workplaces by crossing 3 categories from each of the workplace premiums and average occupation premiums. The crossed tertiles define sets of workplaces that track substantive differences in industry and occupation composition. For the cell lowest in workplace pay premiums and in average occupation premiums, the most common industries are accommodation, food service and retail. These workplaces employ cooks, food service workers and sales clerks. In contrast, establishments with low average occupation premiums and high workplace premiums commonly employ production, transportation and administrative support workers. These establishments are typically in manufacturing, warehousing and transportation industries. Among high occupation premium establishments, those with low workplace premiums are predominantly healthcare and social services, professional and technical services and education. These establishments employ managerial and professional employees like doctors, social workers and teachers. However, they pay relatively little. In contrast, workplaces in the high occupation and high workplace premium cell are in professional and technical industries, healthcare and finance….”

Their data seems consistent with the superstar firms hypothesis, where employees at the high wage firms make more than their peers at low wage firms. Paper argues/shows that over the past 20 (1999-2017) years high paying jobs are increasingly concentrated in high paying workplaces, and low paying jobs are increasingly concentrated at low paying workforces"....Specifically, we argue that recent increases in wage inequality are accounted for by increased correlation between occupation pay premiums and workplace pay premiums. High-paying workplaces once employed low-skill workers in circumstances ranging from unionized manufacturing assembly jobs to maintenance and food service positions at large corporate headquarters. Moreover, previously many members of high-paying occupations—like doctors, teachers, and psychiatrists—worked in low-paying service workplaces. In this paper, we show that these cases of offsetting mismatch between occupation and workplace premiums have become more rare...."

New report from Nathan Wilmers and the Washington Center for Equitable Growth (using restricted BLS data) provides evidence (implicitly) that higher skilled workers are increasingly working to provide services to other higher skilled workers, "... organizations have consolidated occupation and workplace inequalities.... we show how workplace sources of premiums for blue collar workers and penalties for pink collar service organizations have been supplanted by higher pay for already-highly paid teams of managers and professionals. The net result is that it is professionals and managers, not blue collar workers, who now benefit from workplace premiums..."