Volume 6 • Number 1 | March 2022
Is it fair that advanced workers get paid disproportionally more: economic analysis
Olga Kosheleva, and Sean R. Aguilar
Abstract:
Purpose – On the one hand, everyone agrees that economics should be fair, that workers should get equal pay for equal work. Any instance of unfairness causes a strong disagreement. On the other hand, in many companies, advanced workers – who produce more than others – get paid disproportionally more for their work, and this does not seem to cause any negative feelings. In this paper, the authors analyze this situation from the economic viewpoint.
Design/methodology/approach – To analyze the problem, the authors use general mathematical models of how utility – and hence, decisions – depends on the pay-per-unit.
Findings – The authors show that from the economic viewpoint, additional payments for advanced workers indeed make economic sense, benefit everyone, and thus – in contrast to the naive literal interpretation of fairness – are not unfair. As a consequence of this analysis, the authors also explain why the labor share of the companies’ income is, on average, close to 50% – an empirical fact that, to the best of the authors’ knowledge, was never previously explained.
Originality/value – To the best of the authors’ knowledge, this is the first paper that explains the empirical fact – that the labor share of the income is close to 50%.
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