Abstract
In his latest book, You’re Paid What You’re Worth, and Other Myths of the Modern Economy (YPWYW), Jake Rosenfeld debunks the pervasive myth that salary is determined mainly by individual performance or occupation. The human capital theory argues that with more education, a person becomes a more productive worker as human capital accumulates in their body, and as a result their pay tends to rise. As a person who teaches sociology of labor markets, I know that such explanations fit well with students’ typical perceptions of pay. However, when they realize that the explanatory power of education and productivity-related covariates on earnings is low, they start to ask what explains the remaining variation. Rosenfeld answers this question with a mix of theoretical arguments, original survey research, historical events, and literature review. One of the great features of this book is its wealth of real-world cases. YPWYW is likely the most case-rich book I’ve ever read.
YPWYW is divided into four parts and contains nine chapters. In the first part, Rosenfeld introduces the main question, provides theoretical perspectives, and presents survey results on what workers and pay-setters believe about “who gets what and why.” More specifically, Chapter One outlines four elements that shape the dynamics of pay negotiations within organizations: power, inertia, mimicry, and equity. Unequal power relations between employers and employees, as well as within employee groups, determine who will receive a larger portion of the compensation. In pay settings, not only coercive power but also persuasive power plays a role. Organizational inertia makes a certain payment rate taken for granted. Inertia in one organization leads to mimicry by other players, justifying it as a natural market rate. The last element, equity, plays a surprisingly important role. Throughout the book, these four elements are repeatedly discussed with concrete cases. Before challenging the myths of pay settings, Rosenfeld presents Americans' common beliefs on pay settings in Chapter Two by analyzing the survey he conducted in 2018.
The second and third parts of YPWYW are devoted to debunking the myths that individual performance and occupations determine pay. Rosenfeld's first target is the myth that pay is a reflection of individual performance and free markets. He begins Chapter Three with the case of Lilly Ledbetter, a longtime manager at an Alabama Goodyear Tire and Rubber plant, whose pay was substantially lower than her male counterparts’, but who did not know this due to the secrecy of pay. Her case eventually led to the enactment of the Lilly Ledbetter Fair Pay Act in 2009, but the issue of information asymmetry and pay secrecy, which tilts the unequal power balance in favor of employers, remains. Once you become aware that non-compete clauses apply even to Jimmy John's employees, it's hard to argue with Rosenfeld's assertion that employers are working against the principles of a free market.
In Chapter Four, Rosenfeld reveals the flaws of the perception that individual performance can be objectively measured. University professors will find Chapter Four highly relatable to their own experience when they discover that their performance evaluations and departmental resource allocation are determined solely by the number of student credit hours (SCH). In Chapter Five, Rosenfeld discusses how the intellectual idea of shareholder capitalism resulted in win-win pay scenarios for CEOs and lose-lose scenarios for workers.
Rosenfeld's next target is the perception that occupations determine pay. The auto and trucking industries used to offer solid middle-class pay with direct employment from the firm. However, as temp workers spread and institutionalized mimicry followed, these industries no longer offered blue-collar middle-class jobs. The main reason for the drop in truckers' pay is not the decline in productivity. On the contrary, productivity has risen, as Rosenfeld argues. It is the rebalance of power relations in favor of employers resulting from deregulation and de-unionization. It is easy to think that changing industrial environments such as globalization are the root cause of the decline in workers’ pay. However, Rosenfeld compellingly illustrates how interorganizational power shifts have resulted in corresponding intraorganizational power shifts, leading to the decline of unions and the reclassification of workers as independent contractors rather than employees. This ultimately results in reduced wages for workers.
Before moving to the final part, Rosenfeld becomes a bit more optimistic. The title of Chapter Seven is “Bad Jobs Can Be Good.” Here, he discusses how mimicry and inertia, which made good jobs bad, can make bad jobs good. He argues that $20 per hour at Burger King in Denmark can be mimicked in the United States if the right conditions are met. He believes that it’s possible to transform bad jobs into good ones because the discrepancies in pay for the same roles across different regions and time periods illustrate the potential for improvement.
In the book’s final part, Rosenfeld discusses what can be done to make pay fairer. He suggests “raising the pay floor, expanding the middle, and lowering the ceiling.” In short: reduce pay inequality. But how can this be achieved? He proposes several concrete policies, but he hints that the ultimate source of reducing inequality is empowering workers. As demonstrated by his research, when leading companies establish certain practices, their competitors often mimic these decisions, eventually leading to a state of inertia. This is how pay became increasingly inequitable over time. However, the same elements that contributed to unfair pay can also be harnessed to promote fairer compensation practices.
Refusing the perceptions that individual performances and occupations determine who gets what, Rosenfeld brings organizations back into the discussion of pay determination in You’re Paid What You’re Worth. He clearly demonstrates that dominant beliefs and explanations about pay-setting overlook the importance of organizations, and fairer wage settings can be achieved through change within organizations. There is no doubt that YPWYW is a well-written book that contains rich information. My only wish is that he would more clearly differentiate between the myths inherent in dominant narratives and their limitations. YPWYW is an excellent book to assign for reading in any class focused on stratification or sociology of work. It has the potential to be a real eye-opener for both students and the general public. The book's detailed examples, concrete events, and insightful episodes offer a great deal of knowledge to even the most knowledgeable labor market experts. I highly recommend this book to all readers, and I intend to assign it in my class next semester.