Growing wage disparity

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The recent case of a Wells Fargo employee publicly requesting a pay rise caught the attention of the world after the story went viral and spread like wildfire through social media networks. The story itself grabs the attention because of the employee’s audacity in collecting 200,000 email addresses of colleagues and copying them all into a message asking the head of Wells Fargo to consider siphoning off a small fraction of the company’s yearly profits and improving all employees’ salaries by $10,000.

I am sure many employees have dreamt about doing something similar, explaining why the story resonates with us. Yet beyond living vicariously, it catches our attention because many of us are increasingly concerned about income inequality in today’s economies.

It is right and just that hard work is fairly compensated. After all, it is this hard work that creates a company’s success. This is the foundation of meritocracy. Yet it is not the reality of today’s workplace, where real wages are falling, contributing to a drop in living standards that has not been seen since the nineteenth century. Meritocracy is no longer the guiding principle it once was.

The majority of arguments looking for the cause of this wage drop point to the 2008 financial crisis as a trigger, where businesses were forced to cut wages and take on austerity measures in order to survive. Yet even prior to the recession, real wages for those on low pay were not rising at a level commensurate to those on high pay. The financial crisis has merely exacerbated a problem that has been going on for many years, leading to the polarisation of the workforce between rich and poor as a chasm opens up in earnings distribution.

There is a lot of statistical evidence showing that today’s employment figures are growing most in both high and low skilled jobs, with a shrinking in mid-skilled work. There are now more people chasing every low-skilled job than ever before. Certain skills now command a premium. At the top of the most wanted list are data scientists, as a result of organisations using digital innovation to re-imagine how they operate their business. These are now the high-skilled jobs in today’s economy.

It is no surprise to read this week that children are wanting more digital skills as part of their education, signalling that they are aware of how the labour market is changing and what skills they need in order to succeed.

Worryingly it is the demise of mid-skilled work that is of most concern. When a mid-skilled worker loses the job they initially try to find a similar role in another organisation. However they find that these roles are also in decline elsewhere or are over-subscribed. As they do not possess the qualification to move up the skills ladder, eventually they are forced to move down it and compete for lower-skilled work. Subsequently, the pool of low-skilled workers grows, as does demand for each available job. People’s expectations are downsizing and employers who receive plenty of applications for every low-skilled job are under no pressure to increase wages to attract the best applicants. The result is a depression in wages for many and a rise for those in control, as they siphon off more revue to pay executive bonuses and shareholder dividends.

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