The article relates income inequality with rising size of
firms. As firms grow bigger they can achieve economies of scale that allow
their workers to be more productive resulting in higher pay. Therefore, at big
companies a bathroom cleaner and a top executive should have higher pay than
their counterparts in smaller firms. However, the benefits of scale are not
shared equally among all workers as there is a rising gap in wages of top
executives from the bottom as the firm size increases. Thus, only the senior
workers enjoy benefit of scale because of their skill sets. Moreover, the number
of workers employed by 100 biggest firms rose by 53% between 1986 to 2010 resulting
in greater wage disparity, and income inequality.
One solution the article proposes is to spur competition
by removing barriers to entry to smaller firms. This will distribute workers to
smaller firms which will reduce income inequality, and boost economic growth.
What do you think?
7 comments:
i think as the big companies grow bigger and they employ more people, that would decrease unemployment rate and boost the economy. However, the idea to encourage smaller firms to entry in the market is a good idea as well
Smaller firms will only enter these markets if there is economic profit to be gained. Until that point, it doesn't matter if the barriers to entry are removed because the larger firm would be able to leverage its scale and assets to force out the entrant. Do you believe that bathroom cleaners at more successful companies should make more because they can be easily replaced and do not necessarily contribute to the growth of the firm?
I see where bigger firms face the problem of efficiency versus consumer satisfaction. Some big companies are better off to use more machinery and less workers due to efficiency. Because of the use of machinery they can afford to pay their workers better whereas some small firms are better off to have more employees, less machines, but pay each employee less. That is the way industries and firms are changing and I think it is something we are going to have to deal with slowly. Eventually there will be more bigger firms and more employment, just not yet.
I think this is an insightful and, perhaps, more rigorous explanation about a source of inequality. Wages can only really rise if demand rises, people become more productive, or an increase in efficiency allows for money to be re-allocated to paying wages. The theory to explain this choice is called "efficiency wages," an example of which is Henry Ford's "$5/day" wage from the 1920's. Since pay for executives is more likely to grow at all times (because they are productive, usually), income inequality would grow if workers' wages don't have any potential to grow. Economies of growth may provide that wiggle room.
I'm not sure that economies of scale and growth will result in wage increases in these big firms; more likely, increased profits will yield either more workers at the same rate or higher-tier capital investment, given indications from 2011 to the present on wage growth trends and a glut of unemployed workers in many economies that would be willing to work comparatively cheaply.
Would definitely agree with Matthew. Economies of scale, top line growth or better margins have are not being distributed equitably.
I think there should be more of an initiative to minimize the wage gap so that consequences of the gap can be eliminated. The people who are at the lower end of the wage gap are suffering because they can not earn as much money. Therefore, if the future will have more larger firms where people can work, their should be some help of transition for the people in the lower percentiles.
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