Wage differences among workers in the same job and establishment Essay

Establishments employing two workers or more in an occupation often
pay these workers at different rates. How frequent is such pay
variation? How wide is the resulting spread in rates? Does the degree
of pay dispersion differ by occupation? This article explores these
issues using data collected in the Bureau of Labor Statistics’ 1983
Area Wage Survey program. Where an establishment had two workers or
more in a job, the percent by which the salary of the highest paid
incumbent exceeded that of the lowest paid incumbent was calculated.
Percentage differences for individual establishments were then averaged
over all establishments providing such comparisons.



Rate structures were clearly different for white- and blue-collar
workers. More than three-fourths of the workers employed in the 40
white-collar occupations studied were in establishment paying more than
one rate for their job. Fewer than half of the workers in the 28
blue-collar occupations studied were employed in multi-rate situations.
The remainder were either the only incumbents in the job or were paid at
the same rate as the other incumbents of the job.



Among workers employed in establishments paying more than one rate
for a job, the pattern was again different for white- and blue-collar
occupations. Average wage spreads between highest and lowest paid
workers in the white-collar occupations studied ranged from 17 percent
for industrial nurses to 42 percent for intermediate electronics
technicians. For the 12 skilled maintenance occupations, average wage
spreads for all but two were betwee 7 and 14 percent. Among unskilled
plant occupations, ranges were as small as 13 percent for power-truck
operators (other than forklift) and as large as 45 percent for lower
level guards.


These differing structures reflect differences in pay systems in
U.S. industry. Employers commonly adopt formal pay systems,
establishing either a single rate for a job classification or a range of
rates in which the minimum, maximum, or both of these rates are
specified. Pay of individual workers within a specified range depends
on performance (merit), length of service, or both. In the absence of a
formal pay systems, rates in a given job are determined largely by the
employer’s appraisal of individual workers. Data are not available
from the Area Wage Survey program to distinguish between the effects of
formal and informal systems.



Pay spreads among workers in the same job and establishment cannot
be determined from the pay variations typically published in
occupational wage survey reports. Because of differences in pay levels
among employers, industries, and localities, these reports show
considerably wider ranges of pay rates in a job than would be expected
in a single establishment. It is not unusual for BLS area wage surveys
covering a variety of industries to find the highest paid worker in an
occupation earning twice as much as the lowest paid. In nationwide
studies, the highest paid worker may earn more than three times as much
as the lowest paid. In contrast, the average pay spreads found in this
study ranged from 7 to 45 percent.



Information on pay spreads within establishment can be used for a
variety of purposes. For example, it is important to those establishing
and administering rate-range pay plans. It is also useful in analyzing
wage structures in that it helps to explain overall patterns of pay
differentials. In addition, it indicates the extent to which pay may be
increased without promotion to another job.



Computing wage differences



Information for this review of pay spreads within the same job and
establishment comes from data collected in more than 11,200
establishments located in 70 metropolitan areas throughout the country.
For Each of 68 BLS occupational classifications surveyed in 1983, the
percent by which the highest rate paid exceeded the lowest rate was
calculated where an establishment employed two workers or more at
different rates. These percentage differences were averaged, after
weighting the pay spread for each establishment by the number of workers
it employed in the occupation. Establishments paying the same rate to
all workers, as well as those with single incumbents in a job, were
excluded from the calculations.


A standard set of occupational descriptions was used in all
establishments. In some cases, a single BLS occupation or level covered
more than one company job. For example, the wide average pay spread
shown in table 1 for level I accounting clerks in unionized
establishments is partly explained by the existence in some
transportation and utilities companies of two pay grades which fit the
BLS description for this occupational classification. In other cases,
the company job was barely broad enough to fit within the BLS
description. This narrow span of duties could restrict any related pay
range.



This study of wage rate dispersion is limited to spreads between
highest and lowest rates actually paid to incumbents by individual
employers. It does not measure the full spread of formal rate rannges.
This topic, however, was covered in a recent study by Martin Personick.
In a review of formal pay systems for white-collar workers in medium and
large firms, Personick noted that “… differences between the
highest and lowest rates actually paid are generally much smaller than
differences between the maximum and minimum rates specified for a
range.” Personick also found that workers tended to be clustered in the lower half of the rate range.



Single and multiple pay rates



In establishments with two workers or more in a job, the relative
importance of single and multiple pay rates varied by occupational
group. (See table 1.) The generally lower incidence of blue-collar
employment in multiple-rate establishments partly mirrors the greater
extent of collective bargaining among these workers than among
white-collar workers. Negotiated pay structures are more likely to
contain single rates than are non-negotiated structures. As explained by
David Belcher. “Unions often favor the single-rate principle
because it eliminates judgment-based differentials in individual
pay.”



Among plant jobs, guards and janitorial workers were most likely to
be in multiple-rate establishments, partly because many of the
survey’s guards and janitors worked in protective or janitorial
service firms. In these firms, almost all workers are employed in the
same occupation. While most may be paid at or near the minimum wage, at
least some receive higher pay in recognition of length of service or
proficiency in the job. Often, higher rates are also required because
of a customer’s special needs.



About 10 percent of the workers whose wages were surveyed in the
1983 Area Wage Survey program were the only incumbents in their job.
This percentage, however, varied considerably by job
classification–from 1 percent for millwrights to 83 percent for
switchboard operator-receptionists.



Differences in pay



Among establishments paying multiple rates to workers in the same
job, average spreads between highest and lowest rates varied by
occupation, industry, and establishment size category. These factors
and their relationship to union status are considered in turn.



Occupation. White-collar jobs, which commonly include a broad
range of duties, provide an opportunity to demonstrate superior
performance. Where promotion to a higher grade is inappropriate, a
range of pay rates can be used to reward superior performance within a
job or pay grade. Conversely, it has been argued that the working
environment of employees in certain blue-collar jobs–for example, those
in assembly line operations–offers limited opportunity to deviate from
established performance standards; under such conditions, a single rate
or narrow rate-range system may be more appropriate. Furthermore,
single rates or narrow rate ranges are generally favored by labor
unions, whose current strength is in the blue-collar area.



These differences between white- and blue-collar jobs are reflected
in the results of this study. In establishments with more than one rate
for a job, the percent by which the highest rate exceeded the lowest was
generally larger in white-than blue-collar jobs. The roughly 30 percent
average wage spread in white-collar jobs was more than twice as wide as
the average spread in skilled blue-collar jobs, but only moderately
wider than the average for material movement and custodial jobs. Among
the blue-collar occupations studied, the potential for performance
variation is smallest in the skilled maintenance jobs, which are
restricted by definition to workers who have achieved journeyman status.
Also, skilled maintenance workers, on average, are more concentrated in
unionized establishments than are material movement and custodial
workers.



Among the individual white-collar jobs studied, mid-level
electronics technicians had the widest average wage spread (42 percent),
followed by entry-level electronics technicians (39 percent). These
spreads are affected by the fairly broad range of duties and
responsibilities in the BLS job descriptions for the various levels of
electronics technicians. Nurses and switchboard
operator-receptionists–jobs that often have few incumbents within an
establishment–had the narrowest average wage spreads in the
white-collar group, 17 percent for the former and 19 percent for the
latter. Excluding these extremes, spreads ranged from 22 to 35 percent
among office clerical job classifications and from 24 to 33 percent
among the professional and technical jobs.



Except for guards and janitors, average wage spreads for
blue-collar jobs ranged from 7 percent for maintenance pipefitters and
millwrights to 30 percent for material handling laborers. Maintenance
trades helper–a more broadly defined job–was the only maintenance,
toolroom, or powerplant occupation studied with a spread of more than 20
percent. Conversely, 12 of 16 material movement and custodial job
classifications had spreads exceeding 20 percent.



The 45 percent average spread for lower level guards was the
broadest among all of the jobs studied; janitors followed closely with
an average wage spread of 42 percent. Many workers in these two
classifications had earnings at or near the Federal minimum wage and, as
with other relatively low paid workers, a modest dollar spread in their
pay produced a relatively large percentage spread. An establishment, for
example, with one janitor at $3.35 an hour and another at $4.35 records
a 30-percent spread; the same dollar difference between two electricians
who earn $13 and $14 an hour produces an 8-percent spread. More
importantly, perhaps, was the employment of many of the survey’s
guards and janitors in protective or janitorial service firms. As
noted, these firms often pay workers different rates based on the
specific contract under which the service is performed.



Eleven of the white-collar occupations in the study are divided
into two work levels or more, based on duties and responsibilities. In
general, the average percentage spreads of wages were similar for all
work levels of an occupation. Major exceptions were file clerks (a
28-percent spread in level II compared with 22 percent in levels I and
III) and drafters (24 percent in level IV and 30 percent in level I).
In the blue-collar area, average spreads were similar for forklift
operators and other power-truck operators. Tractor-trailer drivers,
however, had considerably narrower spreads (14 percent) than the three
other truckdriver categories (25 to 26 percent). The two levels of
guards surveyed had a 7-percentage point spread.



Industry. Wage spreads between the highest and lowest paid worker
in a job were generally narrower in manufacturing than in
nonmanufacturing industries. This pattern applied to both white- and
bllue-collar occupations. Among the 59 occupations for which
comparisons between the manufacturing and nonmanufacturing sectors could
be made, the average spread in manufacturing was narrower in 52 jobs, of
equal size in three, and wider in four. For three jobs–stationary
engineer, lower level guard, and janitor–the average spread was 23 to
27 percentage points narrower in manufacturing.



Among blue-collar jobs, the generally narrower average pay spreads
in manufacturing industries are partly traced to the greater degree of
unionization in this industrial sector. For 1982–the most recent year
for which unionization data are available from the Area Wage Survey
program–63 percent of hte manufacturing production workers were in
unionized establishments, compared with 43 percent of the blue-collar
workers in nonmanufacturing industries. Table 1 shows, for all
inudustries combined, that blue-collar jobs generally had narrower
average spreads in unionized establishments. Maintenance trades helpers
and janitors–jobs with relatively wide average wage spreads for the
maintenance and custodial occupational categories–were the only
exceptions to this pattern.



In 33 of the 37 white-collar comparisons that could be made between
industry sectors, average pay spreads were narrower in manufacturing,
but unionization is not a major explanation. Unionized establishments in
the 1982 Area Wage Survey program employed 9 percent of the
nonsupervisory office clerical workers in manufacturing and 15 percent
in nonmanufacturing. Considering this limited degree of unionization,
collective bargaining could not produce significant white-collar pay
structure differences between these two industry sectors. Moreover,
considering all industries combined, average pay spreads were wider in
union than in nonunion establishments in 15 of 23 white-collar
occupational classifications that were compared. Differences in the
nature of the job and prevailing pay systems are reflected in the wider
rate ranges that unions have negotiated for white-collar than for
blue-collar workers.



Establishment size. The average wage spread was wider in
establishments employing 500 workers or more than in smaller units in
all but three of the white-collar classifications compared–order clerk II, accounting clerk IV, and electronics technician III. This may
result from the relatively greater use of formal rate-range pay systems
in large establishments. It may, however, also reflect increased
diversity in pay because of greater numbers of job incumbents in the
larger establishments; that is, the more workers an employer has in a
job, the greater the likelihood of having incumbents at or near the
bottom and top of the rate range for the job.



Among blue-collar occupations, the pattern was mixed. Few
establishments with fewer than 500 workers paid more than one rate, or
had more than one employee, in maintenance, toolroom, and powerplant
occupations. Consequently, establishment-size comparisons were possible
in only 5 of 12 of these skilled worker jobs. In 4 of the 5 jobs,
average pay spreads were wider in the smaller establishments. This
result–which is contrary to the general findings for white-collar
occupations–may reflect a greater incidence of skilled maintenance
worker unionization in the larger establishments. Among the less
skilled material movement and custodial jobs, however, average wage
spreads generally were wider in the larger establishments, although the
reverse occurred in 3 of the 14 jobs studied (tractor-trailer
truckdriver, shipping packer, and forklift operator).



Other factors. Data collected in the Area Wage Survey program
permit analysis of variations in pay spreads by type of occupation,
industry, union status, and size of employer. Several other factors,
however, may influence the spread of pay rates within individual
occupations in an establishment. Although this study cannot measure the
extent of their influence, some of these factors can be noted. For
example, a company in a low wage industry, and with a formal rate-range
pay system, may be located in a high wage area. As a result, hiring
rates may be near the top of the range to attract employees, forcing a
narrow spread in rates paid. The rate of worker turnover and the degree
of difficulty in recruiting new employees also affect the location of
hiring rates within established rate-range pay systems.



Variations among establishments



Averages of establishment pay spreads for individual job
classifications conceal significant variations among the establishments.
Table 1 sheds some light on establishment variations by presenting the
range of pay spreads for the middle half of the employees in multiple
rate situations. (The boundaries of this range are defined by the first
and third quartiles.) For example, the middle half of the stenographers
I were employed in establishments with pay spreads between 12 and 51
percent.



For white-collar occupational classifications, considerable
variation is evident among the pay spreads within individual
establishments. In all but four classification, the difference between
the first and third quartiles–the interquartile range–was 20
percentage points or more. The narrowest interquartile range applied to
registered industrial nurses (16 percentage points) and the widest to
drafters I (48 percentage points). Among material movement and
custodial jobs, establishment variations in wage spreads were similar to
those in white-collar classifications, but the variations were not as
pronounced among skilled maintenance, toolroom, and powerplant jobs.



For white- and blue-collar jobs combined, variations among
establishments tended to be greater in occupational classifications with
relatively wide average wage spreads. To account for this relationship,
the interquartile range for each classification was standardized by
dividing it by the median pay spread for that job, producing an index of
relative dispersion. The indexes–which are not shown in table 1 but
can be calculated from quartile data presented–were generally higher
for blue- than for white-collar jobs.

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