The Economy Looms Larger Than It Used to in Shoppers’ Decisions
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The Economy Looms Larger Than It Used to in Shoppers’ Decisions
Chris Gash
A Dollar Tree cashier made $45,000 a year in 2016 in Fairfax, Virginia, where salary-comparison service Payscale estimates the current cost of living is 40 percent higher than the national average. A Dollar Tree cashier in Laramie, Wyoming, took home the same paycheck, according to a study of online US job postings, even though the cost of living there is 6 percent below the US average.
Similarly, a doctor in the Genesis Health System in Boston, where the cost of living is 53 percent higher than the national average, made the same $103,740 annual salary in 2013 as a physician living in Topeka, Kansas, where the cost of living is 15 percent below the national average.
Dollar Tree and Genesis Health are in good company. In many cases, US companies pay employees the same salary regardless of location. And instead of adjusting salaries based on the cost of living or on the number of people looking for work in an area, these businesses are setting—and compressing—wages on a national level, according to London School of Economics’ Jonathon Hazell, Chicago Booth’s Christina Patterson, University of British Columbia’s Heather Sarsons, and Lightcast’s Bledi Taska.
In the United States, bigger companies that provide in-person services—such pharmacies, grocery stores, and health systems—have grown larger over the past four decades by expanding into new regions. Once there, these companies with nationwide footprints consolidate market power by squeezing locally owned businesses that can’t as easily adopt new technologies or recruit and retain workers. How businesses set wages can shape the effectiveness of economic policies, including those designed to combat economic shocks such as a recession or wage inequality, Patterson says. And although the researchers studied job postings from before the COVID-19 pandemic and the rise of remote work, the findings suggest this shift could lead to even more such national wage setting.
“Companies are setting very similar if not identical nominal wages across location,” Patterson says. “A law firm pays incoming associates $200,000 a year. You could be in the Houston office, you could be in New York, San Francisco, Charlotte, wherever. But this isn’t just lawyers. We show that this persists across a swath of the economy.”
The researchers reviewed job-level vacancy data from Burning Glass Technologies, a private job-market analytics company that later merged with Lightcast. Their analysis focused on data covering 5 percent of US vacancies between 2010 and 2019 and included the posted wages for salary and hourly positions, excluding jobs that paid on commission. The researchers also examined self-reported data from Payscale and wage information from foreign-worker visa applications, and they surveyed human-resources managers and executives from large companies with locations in more than one city.
Companies often pay the same wage across all their locations
Researchers analyzed pairs of job postings for identical positions located in different cities. When paired jobs were posted by the same company, almost 60 percent of them offered nearly identical wages. When the paired jobs were at different companies, however, the figure was less than 20 percent.
Within a company, 40–50 percent of posted wages for a job were identical across locations, the study finds. National wage setting occurred in all types of occupations but was slightly more common in jobs that can be done remotely or those with higher salaries such as doctor, lawyer, or accountant. About 20 percent of companies set the same wages in all job categories. The study finds that the practice varied even within a company. For example, CVS Pharmacy set identical wages nationally for pharmacists but not for cashiers.
The researchers calculated how often the posted wages for a specific job varied within a company—by comparing, say, the salary of an accountant at a Deloitte consulting office in New York and that of an accountant at Deloitte in Boston. They also looked at how often that wage varied for the same job posting at a similar company, such as an accountant role at McKinsey in Boston. Using this formula, they find that 49 percent of jobs within a company posted the same wage across locations, while about 9 percent of between-business pairs posted the same wage. The study estimates that companies that didn’t set wages nationally varied salaries across locations by a median of 6 percent.
Why would companies set identical wages regardless of work location? In the survey, about half of HR managers said they do it because they think workers are in areas with similar costs of living. Nearly 40 percent cited fairness concerns, and 35 percent said it’s easier and less costly than tailoring a wage to a location. A smaller number said they set wages to stay competitive and attract workers who live across the country.
“Companies have this idea that if you’re contributing something to the company, you should be paid the same on the basis of that contribution,” Patterson says. “It goes hand in hand with pay transparency. They don’t want a sense of inequality across locations, where some branches end up feeling like second-class citizens. It’s great if you live in Cincinnati; it’s maybe not as good if you’re in New York.”
And setting wages nationally has other advantages for workers, she says. Companies with national wage policies paid higher-than-average salaries, even in cities with high costs of living, the study finds. The researchers estimate that such wage setting costs businesses 3–5 percent in profits annually—but for companies that hope paying higher wages will result in more productivity, and profits, some of those profits do appear to be directed back to workers in the form of higher salaries. Jobs paying nationally set wages paid as much as 20 percent more than comparable work in their area, and in some cases the jobs even required fewer years of education than the typical job in the market.
Jonathon Hazell, Christina Patterson, Heather Sarsons, and Bledi Taska, “National Wage Setting,” Working paper, October 2022.
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