New research from UT-Austin Sociology professor, Dr. Ken-Hou Lin and graduate student Paige Gabriel (with Wharton School professor, Dr. J. Adam Cobb) is featured over at the Harvard Business Review. The article discusses the shift of the pay gap between small companies (those with less than 25 employees) and large companies, focusing on changes in the firm-size premium. The authors note that the gap between smaller and larger firms has shrunk, it has not closed equally as mid- and low-wage workers have a smaller benefit when working at a larger firm compared to their counterparts at smaller firms.
These findings challenge reports released from the White House under the Obama administration that suggested that big companies can get away with paying lower wages solely due to a lack of competition:
The researchers estimate that this decline in how much more big firms pay explains 32% of the rise in inequality between the 90th and 10th percentiles of income distribution. In other words, if big companies today paid as generously as they did in the past, incomes would be substantially less unequal.
…The theory here is that the big-firm pay premium was partly a consequence of having lots of different kinds of workers at the same company. For example, if a big firm had some cafeteria workers on payroll, it felt at least some pressure not to let their wages fall too far, because inequality was bad for morale. But when corporate catering companies came along, two things happened. First, the catering companies hired employees at the going market rate, without any wage premium. Second, the big companies that still had cafeteria staff started comparing how much it paid those workers to the alternative of contracting with the caterer. As firms restructured around one or a few competencies or occupations, the thinking goes, wages converged toward the market rate.
Read more from the original research article here.