Introduction
While there is proposed to be a ‘free market’ of jobs, in recent years, a much more rigid approach to pay has appeared, where using ‘benchmarking’ data, companies choose how much to pay their workers. For example, in an engineering company, the pay-setters will acquire (generally purchase) a dataset of salaries for various job types and seniorities. This data is then compared with current salaries of employees, and pay-rises and pay-bands are then set.
This approach is generally proposed as a way to improve pay standards at companies where workers may feel they are paid below average.
The questions I therefore propose are:
- whether this effectively creates a situation where companies can afford to give their employees sub-inflation pay rises (or equivalent) as they know from benchmarks that other companies are doing similar
- are the salaries in companies driving the benchmarks or are the benchmarks driving the salaries?
- does this provide a competitive market for pay, or cause suppression
- is this an effective monopoly on salaries?
- how does this compare to that of public sector pay, where there are no opportunities elsewhere?
Literature
Interesting papers gathered so far12
Conclusions
Footnotes
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DiPrete, Thomas A., Gregory M. Eirich, and Matthew Pittinsky. ‘Compensation Benchmarking, Leapfrogs, and the Surge in Executive Pay’. American Journal of Sociology 115, no. 6 (May 2010): 1671–1712. https://doi.org/10.1086/652297. ↩
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Azar, José, and Ioana Marinescu. ‘Monopsony Power in the Labor Market: From Theory to Policy’. Annual Review of Economics 16, no. Volume 16, 2024 (22 August 2024): 491–518. https://doi.org/10.1146/annurev-economics-072823-030431. ↩