Pay differences across companies are considerable. Research by Jason Furman, US President Barack Obama’s top economic adviser, and Peter Orszag, Obama’s former budget director, has found that rising pay differentials are the prime cause of widening US wage inequality in recent decades. They account for a larger part of the rise in overall income inequality than wage differences within companies or capital income.
At the other end of the spectrum, many labor-force participants are on temporary contracts, work for small firms, or are self-employed. Some combine different jobs at the same time. If, as expected by many, the so-called sharing economy develops, their number is bound to grow. These workers do not benefit from job security and generally earn much less.
Emerging countries offer the example of blatant inequality between employees in the formal sector – companies like Petrobras in Brazil and Infosys in India – and those who work in the informal economy. But even in advanced economies, where social protection is broad in scope, access to benefits is far from equal. Employees of large, profitable firms tend to enjoy better health-care coverage, more generous pensions, and easier access to training. Moreover, some benefits – for example, parental leave – are conditional on seniority within a company.
These are disturbing facts. Talent and effort should be rewarded, but two people of equal capabilities and dedication should not be treated differently just because one happens to be an insider, with a secure job in a big, successful company.