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You’re Paid What You’re Worth: And Other Myths of the Modern Economy by Jake Rosenfeld

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You’re Paid What You’re Worth: And Other Myths of the Modern Economy
by Jake Rosenfeld

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Economists have tended to assume that the value of our personal contribution—our marginal product—largely determines what we get paid. In reality, there are many other factors involved that have nothing to do with our qualifications or personal performance. Here Jake Rosenfeld, Professor of Sociology at Washington University in St Louis, explains why it is that senior executive pay growth has shot up in recent decades and why, for workers at the bottom, it has flatlined.

Interview by Benedict King

You’re Paid What You’re Worth: And Other Myths of the Modern Economy by Jake Rosenfeld

OUT NOW

You’re Paid What You’re Worth: And Other Myths of the Modern Economy
by Jake Rosenfeld

Read

Before we get on to your book choices, can you just summarize the thesis of your book, You’re Paid What You’re Worth? Could you touch on how, as a sociologist, you’ve been able to shed light on this issue of what people are paid, which is often seen as an exclusively economics issue?

Yes. Fundamentally, this is a book that tackles a central question for anyone who has received or will receive a paycheck. What determines your pay? This is not completely unexplored territory, as you’ve alluded to. The motivation behind writing it, though, was to address what I thought were some rather misleading explanations of pay, widely held within and beyond the academy. One, in particular, has really been anchored within economics. I should be very clear: I draw on contemporary labor economists throughout this book. There’s a whole new generation of labor economists who are doing incredible work. But, still, there is a fundamental notion of pay determination anchored in individual performance. And this book departs from that perspective, by arguing that the number on your paycheck is much more a reflection of a set of organizational dynamics, or that these dynamics are just as important as your individual contributions to your workplace. These dynamics are, first and foremost, power, as well as inertia, mimicry and equity.

Having a background in sociology has meant I was never, through my training, wed to the neoclassical model, the human capital model of pay determination. I was much more catholic in my tastes. I’ve always been interested in the fundamental factors driving pay and pay dynamics, especially in this age of runaway inequality. Being a sociologist meant that I was just more open to other perspectives, within and beyond economics, to come up with what I hope is a new understanding of pay, that leaves behind some of what I think are our bad habits of thinking about pay determination from the past.

There’s a lot of innovative thinking in economics going on around this area, and a lot of it is pushing in the same direction as your work. Do you feel your book is a contribution to a debate about inequality that has been won? Is there still more intellectual conviction to be built, or is the problem now one of taking on vested interests that have been built up over decades, and that are strongly invested in, say, the capital model of determining pay?

The movement within the academy has been swift and, from my perspective, quite impressive. Whether it’s penetrated broader, policymaking circles, is not so clear. But it certainly feels like the train is moving, and in a way that I would not have predicted four or five years ago.

“It’s within organizations that pay is being determined”

My book is a primer that organizes and summarizes a lot of this really exciting research and puts it under a common theoretical framework that hadn’t been done until now. But you’re absolutely right that my ideas about understanding pay dynamics and inequality trends were driven by some of the amazing empirical work coming out of labor economics, but also sociology, management studies and other like-minded disciplines.

Let’s move on to your books. The first is David Weil, The Fissured Workplace, Why Work Became so Bad for so Many, and What Can be Done to Improve it. Why have you chosen this book?

The Fissured Workplace was fundamental to my thinking, especially about one of these factors that I mentioned earlier, that drives pay and helps us understand changing pay dynamics over the last couple of decades—equity norms.

This book takes us through ways in which corporations have outsourced, and otherwise shed functions—and the workers involved—that used to be in-house. At my university, outside my window, you will see security guards working and grounds crew tending to the plants. There’s a staffed cafeteria next door. Thirty years ago, all those workers were employed by my university, and received a paycheck from the university. Many have been outsourced to staffing companies. And what Weil does in his book is take us through what that allows the lead firm—in this case, the university—to do in terms of pay. It’s really hard to justify drastic pay differentials under the same roof. It’s harder to, say, pay your professors X amount, and your grounds crew and your cafeteria staff much, much less if they’re all employed by the same organization. And so a solution to that, if you’re trying to cut labor costs, which is a dominant trend across all industries, is simply to say, ‘Those people are no longer employees. And we’ll contract with staffing companies that can supply them and take the lowest bid.’ There’s a lot more in this book, but it is a fundamental text for understanding how, over time, companies were able to skirt around equity concerns that in the past helped constrain wages.

The other thing I picked up from reading your book was that not only does it allow you to build much greater pay differentials within organizations, but those workers at the bottom are also, effectively, permanently temporary.

Yes, exactly. And so another fundamental insight is the rise of the ‘temp’ workforce. Oftentimes, it’s ‘temp’ in name only. There are classic examples now in US manufacturing plants where you’re brought in by a temp agency, you’re working at, say, a Nissan plant or a Honda facility and you’re working alongside Honda workers and Nissan workers, you’re doing the same work that they are doing, but you are not being paid by Honda or Nissan. You’re being paid by your temporary agency. And you can oftentimes find yourself toiling away at that temp agency for a year, two years, three years, making far less than your colleagues sitting one row over on the assembly line, who actually are classified differently from you.

And that, in turn, can drag the permanent workforce’s wages down as well, right?

Absolutely, because they are going to be much less likely to try to bid up their wages, to bargain, when they see what the alternative might be.

Let’s go to the next book, Truman F. Bewley’s Why Wages don’t Fall During a Recession. This is presumably about how wages are sticky on the downside?

Yes, it’s a dense but fun read. Bewley is a top economist who was growing more and more frustrated throughout his career that the fundamental economic models of pay determination—in this case, pay adjustments during economic downturns—didn’t seem to translate into real world activity. And so he’s openly scathing towards his fellow academics in the book saying, ‘You know, at some point, you have to get out of your modelling and your equations and go talk to actual employers, who are actually determining people’s pay out there.’ And that’s what he did. And what he found was, from a sociological perspective, I think, not shocking, but still really important to understand.

“Most Google workers don’t actually work for Google”

The fundamental dilemma he’s trying to solve is that from a standard neoclassical framework, we’d expect employers to adjust wages downward during an economic downturn, to make up for decreased demand for goods and services. But that’s generally not what we find. And again, this brings up notions of equity—that workers do not like having their pay cut, that it’s seen as a kind of moral injury.

He interviews employers who are very open about this, that the last thing you want to do is cut pay, and so you do everything you can to adjust during an economic downturn, except for cutting pay. So that’s an answer to his fundamental dilemma, but I think the work stands out for just being a nice piece of scholarship where an acclaimed economist just threw his hands up and said, ‘Forget this, I’ve got to get out of the office and go talk to some actual human beings.’

Next up is Barbara Ehrenreich’s book, Nickel and Dimed: On (Not) Getting by in America.

This is a classic book and much less academically grounded than some of the others. But I think it’s still really important. It has been inspirational for me in a number of ways. I engage with my colleagues in labor economics a lot. We talk a lot about skilled workers, unskilled workers, and what Ehrenreich does with this book is take on job after job at the bottom end of the economic spectrum and tell the story of her work—and it’s pretty convincing. She works in Walmart; she works as a hotel cleaner; she works in a kind of diner as a waitress. These jobs are not unskilled; they are incredibly hard, and they’re gruelling. And they’re pitifully paid.

In some cases her co-workers were living out of their cars, or can’t afford basic necessities and the like. And what’s often forgotten about this book, which is both colourful and tragic, is that she’s doing her fieldwork in the late 1990s, during one of the tightest labor markets we had ever seen—in the United States, at least, when theoretically workers should have been able to negotiate for higher pay because employers should have been so desperate for their labor at the time.

But, in fact, what she finds is that all the power in the world resides with the employers and that workers, even during the best of times, economically speaking, were unable to negotiate much of anything. And I think, for me, it just goes to show that pure labor market conditions—the business cycle—won’t automatically result in better conditions for wide swathes of the labor force.

Is she an academic or a journalist?

She has a PhD in biology, but then translated that into a really brilliant career doing some journalism and some less journalist-style books.

Let’s move on to the next book, which is Rick Wartzman, The End of Loyalty: the Rise and Fall of Good Jobs in America. Why have you included this one and what’s the book’s thesis?

Wartzman is a wonderful, award winning journalist who wrote for the Wall Street Journal and the LA Times. This is a nice book where he focuses on a couple of major corporations, including Coca-Cola, and traces a sea change in attitudes and behaviors among the America CEO class over time. In the past, of course, major corporations did all sorts of terrible things. But, there was—at least the argument goes—a set of responsibilities to local communities and to workers, there was a broader stakeholder mindset, which held that a responsible corporation owed it to their workers to treat them well, and owed it to the communities in which they were anchored to treat them well, and, for a variety of reasons, that all changed.

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Take a figure like Mitt Romney, former presidential aspirant, current senator from the state of Utah, former governor of Massachusetts. He’s had a colorful career. Mitt Romney’s dad, George Romney, was once an acclaimed CEO of a major car manufacturer in the United States. George Romney, famously, when the company was doing great and the board kept voting for higher and higher pay, rejected pay increases offered to him, saying that he earned plenty and didn’t want his salary to be too much higher than his workers. He thought that would be unseemly. Mitt was himself a co-chairman of Bain Capital, and had no such compunctions whatsoever with respect to remuneration. That’s not to pick on Mitt Romney, it just illustrates a broader normative shift among the corporate class from one where there was some restraint and responsibility when it came to their own pay and the pay of their workers, to one, now, where it’s much more a question of ‘take whatever you can get’, and then do what you can to hold labor costs down.

You bring that story up in your book, and it’s incredibly striking, because it shows that this can only be explained by some kind of cultural shift. You can’t just say that this is the laws of economics operating, because George Romney could easily have done exactly what his son did.

Yes. It’s tricky. I’m a quantitative-minded social scientist, and most of the work I draw on is quantitative as well. So, capturing this cultural shift poses methodological challenges. But, like you said, it’s so evident. I think there are a lot of institutional changes that help to carry along this cultural transformation. But it’s clear that even over the course of this one generation, from George Romney to his son, something in the mindset of the CEO class, some sense of restraint, just evaporated.

Let’s go on to the final book by Donald Tomaskovic-Devey and Dustin Avent-Holt, Relational Inequalities: An Organizational Approach. What does this book bring to this story?

These two authors are both organizational sociologists who have done what I think is the most pathbreaking work to reorient sociology to focus our understanding of inequality dynamics on organizations. It provides the real theoretical backbone for a lot of the arguments I’m making in the book, where I’m saying that instead of a focus on individual performance, or instead of a focus on occupational differences—the notion that some jobs are good, due to inherent features of those jobs, and some jobs are bad, and bad pay due to inherent features of those jobs—we should look much more at what’s happening within organizations because it’s within organizations that pay is being determined.  At some point, someone in HR, or your manager, is determining that number on your paycheck. For non-academics that may seem obvious, but in academia, I think we were wed to a set of perspectives that didn’t have us focused on that as much as we should be, at what’s happening in organizations and what has changed over time to help us understand this broader rise of inequality.

What is the answer to that? You talk in your book about needing to increase the size of the middle, raise the floor and lower the ceiling a bit. But are there regulatory things around the structure of organizations that need to happen to make that work? Should a university be forced to pay its ground staff directly, making it illegal to take them from a temp agency? And can that be done, or would it be too complicated?

This is where I think David Weil’s work is so important, because I think, yes, there is a role for regulation and for a new set of incentives that would help change the boundaries of organizations, that would bring all these people who’ve been ‘fissured’ out, to use his term, back under the umbrella of the organizations for which they actually work. So David Weil, right after writing the book, was actually tapped by the Obama administration to serve in the Department of Labor. And he was really working on these issues of classification: that Nissan or Honda could have workers doing the same jobs as the Nissan workers, and Honda workers, yet be employed by a different agency. He wanted to raise important questions about whether that was right. They got quite far with the work, but then there was a change in administration and all of those efforts were halted.

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But I think that momentum is still there. You’ve seen some battles around the ride-sharing economy. You’ve seen these battles play out both in Europe, and also here in the United States, where there are efforts—at the state level, at least—to classify platform workers as employees, not as independent contractors, which, from the employer’s perspective, absolves them of providing the raft of protections enjoyed by workers who are classified as actual employees. These questions of classification speak to organizational dynamics. And here, I think, there’s a huge role for policymakers as they try to reshape the economy in a fairer direction.

Isn’t this really just an extension of what happened in the 1970s over women’s pay? I don’t know what the situation was in the US, but I suspect it was very similar to the UK where there was an Equal Pay Act, which meant you couldn’t pay a woman less than a man for doing the same job. Isn’t this just saying you can’t pay anyone—on any basis—less for doing the same job as anyone else?

Yes, this a key insight, absolutely. Equal pay for equal work means equal pay for equal work, whether it’s distinctions based on gender, race, ethnicity, whatever. But this would mean that if you’re doing the same work as your colleague, it doesn’t matter if you’re employed by Amazon, or Google, or a staffing agency for Amazon or Google, you should enjoy the same pay for that work. Something that flies below the radar is that a majority of the staff at some of these tech giants are non-tech giant employees. Most Google workers don’t actually work for Google.

And are we talking about highly qualified computer scientists, and all the way down to cleaners?

Yes, absolutely. From the cafeteria workers up to some of the scientists working on the latest innovations in artificial intelligence.

That’s an extraordinary thought. To end, generally speaking, are you optimistic about the direction of travel? Do you think that actually, the fight against these kinds of arrangements is gaining so much momentum that things are going to change?

My first book, What Unions No Longer Do, contained a discussion about inequality trends. That came out in 2014. If you’d asked me back then, I was quite pessimistic. At least in the United States, neither of the major political parties were addressing this issue, and I think they were led astray by this foundational idea that pay dynamics are really driven by individual performance. So, if inequality is related to performance differentials, how do you address that? Well, you just need to get skills to the people who aren’t making a lot of money right now.

Now there does seem to be real momentum behind other ideas, within and beyond the academy, including many in the policymaking community. We have a new administration in the US. The idea of a $15 minimum wage at the national level would have been laughed at in elite policy circles 10 years ago, across the ideological spectrum. And now it polls incredibly well, and implementation is a real possibility. So, I think there’s momentum behind efforts to raise the floor and possibly expand the middle.

How to address the top of the distribution becomes much trickier. There, you have vested interests and real power behind current practice. A wealth tax was floated in some of the primary debates back in our presidential election, but the momentum behind that seems to have stalled. I think that as a fundamental issue of fairness, and if we’re going to do carry out a substantial expansion of the welfare state, and a reorganization of capitalism, which many people seem to be behind, higher taxes on wealthy individuals will be required, on those who have benefited the most from how our political and economic arrangements have changed over the last half century. They should pay what I would argue is their fair share. But that’s more of an uphill battle.

Very, very well paid people don’t like seeing their wages fall any more than very, very badly paid people. 

That’s right. And they have a lot more resources.

We’re all the same. 

Absolutely.

Interview by Benedict King

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Jake Rosenfeld

Jake Rosenfeld

Jake Rosenfeld is Professor of Sociology at Washington University-St. Louis and the author of You’re Paid What You’re Worth and Other Myths of the Modern Economy (2021) and What Unions No Longer Do (2014).