University of Wisconsin–Madison
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Good jobs: The importance of who you work for

Most microeconomic research on poverty focuses on individual behavior and decision-making: examples include the choice of schooling, responses to welfare programs and tax reforms, and decisions about marriage and family. Most people, however, if asked to identify the key to economic success, will say “getting a good job.” During the recent recession, many workers, especially older ones, have lost good, high-paying jobs and have not been able to replace them, thus suffering large, persistent losses in income. One might think that someone who was working at a high-paying job could find another employer who would be willing to hire him or her at nearly the same wage. But in reality, getting a good job is hard, and often takes many years. Losing a good job—especially for older workers—can mean the end of a rewarding career and relegation to the secondary sector, where many jobs are part-time, and few offer health insurance or pension benefits. In this article, I will argue that having a “good job” is mainly about working at a “good firm” that offers a higher wage for all (or nearly all) its employees. To many people, I suspect this is obvious. To economists, it’s a major puzzle. On one hand, good firms appear to be more productive than other firms, and some of the higher pay at these jobs appears to be due to a sharing of the fruits of this higher productivity between the firm and its workers. Standard economic theory has a hard time explaining the wide variation in productivity we see in modern economies like the United States. In theory, competition should drive out the unproductive firms and only the most productive will survive. The reality is obviously different. On the other hand, even if a firm is highly productive, why should it pay its workers more than the “market wage”? Is it possible that by offering a higher wage, a good firm makes its workers more productive, and can therefore offset its higher wage costs? After discussing the emerging evidence on the importance of firm-specific wage policies—whereby some firms pay more than average for a given worker, while other firms pay less—I turn to a review of some of the major facts about the labor market behavior and outcomes that appear to be intimately related to these policies, including the effects of recessions, the nature of careers, and the wage gaps between women and men.

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Employment, Inequality & Mobility, Inequality & Mobility General, Labor Market, Low-Wage Work

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