Technology is making American employment markets better and better at paying people exactly what they’re worth. And it might be bad for all of us.
Noam Scheiber‘s Pacific Standard essay is currently available to subscribers and will be posted online on Tuesday, May 19. Until then, an excerpt:
Two years ago, I spent time reporting on Mayer Brown, a massive Chicago-based law firm that had traditionally been so staid and nurturing it was nicknamed Mother Mayer. Like most white-shoe firms, Mayer Brown used to pay its senior lawyers fairly similar salaries, regardless of how much business each generated. (Some law firms even abided by a “lockstep” compensation system, in which every partner with the same seniority took home exactly the same amount.)
Then, in the 1980s, The American Lawyer started publishing a statistic called PPP, or profits per partner. Suddenly, firms that had thought of themselves as rough competitors realized they were earning vastly different sums of money. If you were a rainmaker at a firm with a low PPP, you saw that your pay was suffering as a result—that you were subsidizing your less productive colleagues. You also realized you could get rich by decamping to a more profitable rival. For a while, basic inertia and residual loyalty discouraged defections. By the early 2000s, though, rainmakers changed firms constantly. Their salaries ballooned. Other partners saw their pay stall out or even fall.
Mayer Brown felt these pressures as much as any other firm. In 2007, it stripped nearly 50 of its partners—some 10 percent—of their equity stake. Those who didn’t leave suffered a substantial loss of income. Around the same time, Mayer Brown began courting outsiders aggressively. It acquired the white-collar defense practice of a smaller firm called Crowell and Moring in 2005 and paid the head of the practice roughly $2 million per year. Even so, by 2010, he had taken his practice to yet another firm.
Such stories are playing out across the economy. In the same way that law firms now obsessively track the income generated by each client a partner lands, technology has made it easier to measure the productivity of other white-collar workers. Long-standing workplace norms—like promoting from within or limiting disparities in pay—have broken down. It’s not just the ethos of the baseball star in the era of free agency; that was the ’90s. It’s the ethos of baseball super-agent Scott Boras in the era of sabermetrics, in which players and their negotiators claim to precisely identify each player’s value, then jump from team to team to extract every last ounce.
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