Inequality isn’t just about individuals — it’s risen between companies, too. ….
…..If we want to truly understand income inequality — if we want to mitigate it and its pernicious effects — we must look beyond CEO compensation and tax policy and consider the role played by firms and their hiring and compensation policies for ordinary, non-millionaire workers. This is not a simple morality play in which evil companies are pitted against the middle class. There is nothing nefarious about Google’s goal of being the global leader in software and machine learning, or in its hiring the best employees it can find. Yet the result of countless strategic decisions in pursuit of such goals by Google and other elite companies throughout the world — not just in tech — has been to raise the compensation of some workers far more than others.
It’s time to turn our attention from comparing individuals’ fortunes to considering differences between firms…..
Why Inequality Is an Urgent Business Problem
Source: Rebecca Henderson, Harvard Business Review, March 29, 2017
Capitalism has a complex relationship with inequality. It is built on the idea that those who have the drive and creativity to build new businesses should do better than those who do not. We celebrate entrepreneurs like Steve Jobs, Elon Musk, and Mark Zuckerberg because they exemplify the best of capitalism: Their wealth flows from the fact that they had the imagination and the energy to create enterprises whose products have changed our lives and that employ hundreds of thousands of people….
Why Some Firms Pay Better Than Others
Source: Craig Rowley, Harvard Business Review, March 23, 2017
The wage gap among firms appears to be rising, although the causes remain a matter of debate. Some of the disparity may be a matter of how skilled the workforce is at various firms; some of it may be due to differences between industries. But in my experience, the biggest factor in how well a company pays is its business model, which will determine important metrics such as its gross margin, how much labor costs are as a percent of its operating expenses, and its employee productivity….
Competition Is on the Decline, and That’s Fueling Inequality
Source: Walter Frick, Harvard Business Review, March 24, 2017
It’s almost a truism among executives that business is more competitive today than in decades past. Technology has lowered barriers to entry; global trade has put companies in competition with rivals across the globe; the list of billion-dollar “unicorn” startups seems to grow longer by the day. But Jason Furman, the chair of the Council of Economic Advisors under President Obama, argues that the problem with the economy isn’t that there’s too much competition; it’s that there’s not enough. In 2015, he and Peter Orszag published a paper suggesting that competition was on the decline, boosting monopoly power for a small number of incumbent firms. That in turn meant higher “rents” — economic parlance for excess profits, above what a company would normally earn in a competitive market….
The Inequality Story, in Charts
Source: Gretchen Gavett, Harvard Business Review, March 27, 2017
Whether we look between countries, companies, employees, or genders, economic inequality is one of today’s defining issues. But what, exactly, is it? Economists agree that it’s not a monolithic problem, with a single cause and result. Rather, inequality should be seen through multiple lenses that all play a role in shaping our world. To better understand income inequality, HBR asked leading economists to share a data visualization emblematic of the issue they find most compelling.
From global shifts, to education and gender, to the role of corporations, here are seven charts they said best describe inequality in the world today….
Income Inequality, by Chance or by Choice
Source: Daniel McGinn, Harvard Business Review, March 27, 2017
Economists are increasingly focusing on how income inequality plays out at the company level, but it’s important not to lose sight of how this phenomenon affects individual employees. Working for a “losing” firm can have profound implications for earnings and upward mobility. Understanding this dynamic can be difficult, because people are reluctant to share details about their earnings.
But one group of people has unique insight into how it shapes workers’ lives: financial planners…..