Book Review: You’re Paid What You’re Worth and Other Myths of the Modern Economy
A review of Jake Rosenfeld’s You’re Paid What You’re Worth and Other Myths of the Modern Economy by Laura Adler
For all the talk about “doing what you love,” money is still the reason most people work. And how much you are paid is not simply a matter of how much you can afford to buy—it is bound up with your sense of self-worth.
Kenneth Feinberg, an attorney and mediation specialist who helped determine the value of each life lost in 9/11 as part of the Victim Compensation Fund, learned this firsthand several years later, when he was appointed Special Master for Executive Compensation by the US Treasury Department. In the wake of the 2008 financial crisis, he was tasked with determining pay for executives at companies that accepted bailouts from the US government. He proposed cutting their pay back dramatically, while still leaving them with a hefty salary that would easily position them in the top 1% of American earners. He described proposing: “‘You’re making $5 million a year, now I’m going to cut it back to a million,’ [and] I waited for them to say, ‘Oh, that means I’ll have to sell a third car. I’ll have to get rid of our estate on Long Island at the beach…’ that’s what I expected. I was wrong.”[1] Instead, he described, there was “tremendous blowback”: it got “very emotional, because these corporate officials viewed their compensation as the sole barometer of self-worth.” Asked in an interview whether this surprised him, he responded:
Surprised me? It was as emotional as [the] 9/11 [Victim Compensation Fund]. [They said] “Mr. Feinberg, if you cut my pay by 90 or 80 percent—how dare you? I have worked for 25 years for this company, I have given up my sweat and my blood and all that I could. And now you have made me worthless in my own eyes.
How do organizations put a price on people’s work? And how do those valuation processes result in a pittance for some and vast riches for others? These are the questions Jake Rosenfeld, Professor of Sociology at Washington University of St. Louis, takes up in his book You’re Paid What You’re Worth. Drawing on survey data and pulling together academic literatures from the sociology of work, labor economics, and organization studies, Rosenfeld challenges dominant explanations for pay outcomes and develops a sophisticated theoretical framework grounded in core socio-economic ideas of power, isomorphism, and equity. He documents the structural factors that have changed the balance of power between workers and employers, contributing to the widening gulf between the wealthy and the working class. Ultimately, these insights allow Rosenfeld to develop a policy agenda in his final chapter to address inequality at three levels: raising the floor, expanding the middle, and lowering the ceiling for a more equitable society.
The book’s major intervention is its direct challenge to the two dominant explanations for pay outcomes: human capital explanations, on the one hand, and occupational explanations, on the other. He does this by marshaling diverse and creative sources of evidence to challenge the core assumptions at the heart of these schools of thought.
First, he tackles the human capital perspective. He defines this approach as positing that three “fundamental factors” determine pay: individual workers’ performance, labor market competition, and market demand for organizations’ products and services. He addresses each of these beliefs in turn. Surveying a representative sample of Americans, he finds evidence that the first pillar of the human capital perspective—the individual’s own performance—has become a widely held belief, as workers claim that their own individual performance both does and should drive their pay outcomes, more so than factors like experience, occupation, and education. A smaller survey of pay-setters finds that they believe the same thing: that pay is and should be based primarily on performance.
In Chapter 4, however, Rosenfeld puts the lie to this belief. He unpacks the critical shortcomings of three “wrong assumptions” (90) underpinning the myth: that individual workers have a “marginal product,” or an identifiable, individual contribution to organizational productivity; that this individual marginal product is measurable; and that paying based on productivity is good for the organization. Instead, he argues, workers typically don’t have an identifiable marginal product because organizational success is difficult to define and often contested. Efforts to measure individual performance are hampered by the fact that the output of most work—especially knowledge work—is not easily quantified, particularly in contexts that rely on collaboration. And even if we know what performance is, and even if we can measure it, it might not be wise to tie pay to performance, as doing so can lead to widespread dissatisfaction. For instance, when one law firm moved from a “lockstep” seniority-based pay system to an “eat what you kill” performance-based one, they saw declines in morale and collaboration. As Rosenfeld sums up, “Having the ability to measure something doesn’t mean those measurements should guide everything” about pay (111).
Rosenfeld addresses the two other pillars of the human capital model—labor market competition and market demand for the organization’s products—in Chapters 3 and 5. In Chapter 3, he documents employers’ aggressive efforts to weaken labor market competition using non-compete clauses, no poaching agreements, and the suppression of salary information that might empower workers to advocate for higher pay. In Chapter 5, Rosenfeld addresses demand, drawing together two well-documented trends to highlight their common implications: consolidation of buyer power in large companies like Walmart and the rise of the shareholder-value mentality. Large buyers end up forcing down prices, leading the employers who depend on those buyers to reduce wages. Shareholders similarly exercise power over managers to hold workers’ wages down. While these chapters cover familiar terrain for organizational and economic sociologists, Rosenfeld draws together diverse strands of the literature to challenge the key claims of the dominant human capital framework, and in doing so, he develops a clearer picture of why wages have remained low for many workers.
Rosenfeld also tackles the occupational account of wages, albeit with a softer touch. In the introduction, he defines the occupational approach as resting on processes of occupational closure through licensing and credentials, clearly outlining why scholars believe these processes affect wages. The pair of chapters that address occupation, Chapters 6 and 7, don’t challenge this occupational model head-on, but instead focus on the issue of job quality, showing how “good jobs go bad”—for instance, through the erosion of worker power in manufacturing—and how “bad jobs can be good,” under the right circumstances. While these chapters pick up important issues around job quality and question myths about the return of “good” manufacturing jobs, they do less to pick apart the occupational account.
Rosenfeld provides the outline of a sociological model of pay-setting, based on four factors: power, mimicry, inertia, and equity.
The first chapter offers a compelling articulation of why each matters. Rosenfeld further explores power and equity across chapters, as both are central to the challenges he poses to the human capital account. But mimicry and inertia get shorter shrift. In some places, inertia gets used as a kind of catchall for why things persist, as when Rosenfeld explains the idea that employers pay a “standard rate for the job” as “indicative of how wages get attached to particular jobs, inertia sets in, and soon jobs are seen as having a natural pay range” (43). To an organizational scholar, this raises a number of questions—how do wages get attached to jobs? Why does inertia set in? How does a pay range come to be seen as “natural”?
These are questions that Rosenfeld does not answer, in large part because he does not spend much time looking inside organizations, at how employees interact with their managers, how HR advocates for workers or protects management, how work processes change, and how employees move through organizations over time. There is much to discuss about wages that does not hinge on these factors, but the lack of engagement with organizational perspectives suggests that there’s more to be done to develop an “account of pay-setting […] rooted in organizations—with all their power dynamics and established habits, tendencies towards imitation, and equity concerns of people within them” (5). The book gives us new ways to think about pay and inequality, pointing to new directions for organizational scholarship.
There are other opportunities, too, that call out to the economic sociologist. Chief among these is what people mean by “the market” when it comes to workers’ pay. Rosenfeld sometimes appears to use ideas of the market, performance, productivity, and human capital interchangeably—paying based on performance is described as paying based on the market, and both are seen as bearing out the human capital perspective.
But how does human capital of various kinds manifest as productivity? How is productivity conceptualized as “performance”? And how do all of these become subject to market forces? Do workers go “on” the market and does that market efficiently ascertain the value of their services?
An economic sociologist would likely say no: labor, of course, is one of Polanyi’s fictitious commodities, not produced for the purposes of market exchange. This raises the question of whether pay can be subject to market forces and, if not, how the idea of the market gets used to justify or legitimize pay outcomes that arise in other ways. Also intriguing, but underdeveloped, are questions around quantification in Rosenfeld’s discussion of performance measurement. Rosenfeld cites recent research on quantification in the workplace, but he does not address broader questions about how pay “quantifies” us—how, like Feinberg’s executives, we come to see it as a measure of self-worth—and what that self-quantification does to social life.
You’re Paid What You’re Worth offers a lucid and important critique of received wisdom about pay, providing tools for challenging the pay inequality that defines our age. Rosenfeld brings a compelling writing style and an extraordinary ability to marshal colorful cases to illustrate even the densest academic theories. These talents make it an exciting read for diverse audiences. Even as it answers critical questions about how we ended up with stagnant wages for some and eye-popping salaries for others, it also opens up new avenues for investigating pay as an organizational phenomenon and a critical case for socio-economic theory.
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[1] Miller, Max, and Andy Meisenheimer. 2018. “Who Decides How Much a Life Is Worth?” Freakonomics (blog).
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About the author
Laura Adler is a PhD candidate in sociology at Harvard University. She works on topics at the intersection of organizations, gender, and cultural sociology.
Her dissertation, “From the Job’s Worth to the Person’s Price: Pay-Setting, Gender Inequality, and the Changing Understanding of Fair Pay,” investigates how the interaction between organizations and gender equity laws has shaped employers’ pay-setting practices. She uses multiple methods including in-depth interviews, archival research, and survey experiments to provide insight into pay-setting as an organizational practice and site for the reproduction of inequality.
Other projects explore the world of work from the perspectives of workers, employers, and regulatory authorities. One paper explains why highly educated artists so often choose to earn a living from “bad” jobs. Another examines the role of cultural frames—and specifically the concept of regulatory capture—in shaping public debates over how to regulate the gig economy. A paper coauthored with Elena Ayala-Hurtado, uses mixed methods to explore how job-seekers navigate the tension between two powerful cultural scripts: on the one hand, a social capital script that impels us to use connections to access jobs and, on the other, a script about meritocracy that portrays the use of social ties as nepotism.