Stephen Monrad

My new approach of setting different wage caps for different job classes creates room for incentives which is good. However, it also creates a big problem: how should the wage caps be set?

I still think it is too difficult to try to measure the value of what people produce. The caps need to be linked to something else.

Another problem is that there are too many combinations and permutations of job responsibilities to try to classify all jobs individually. Simple rules would need to be used.

If we focus on the problem of incentives, the problem might be more manageable. Let’s assume that all jobs get the same standard pay range as the default. Equal pay for all fails when people refuse to do work for one reason or another. The way to determine which jobs need bigger incentives and thus higher pay caps is to look for jobs that are difficult to fill.

Instead of setting higher caps on a job-by-job basis, the factors that make it hard to fill jobs should be identified. Common sense and a little data analysis should yield results. Right off the top of my head, I expect higher pay caps would be needed to attract people to jobs that:

• involve shift work,
• are dangerous,
• require training where the cost is borne by the employee,
• are located in isolated communities,
• are unpleasant (smelly, hot, cramped),
• involve added responsibility (I’m less sure about this one), or
• require long work hours.

One solution would be to develop a long list of factors like this, find ways to measure the degree of the problem, and then assign a wage cap increase that jobs with the characteristic get. If a job has multiple negative factors, the cap increases could simply be added together.

How big should the cap increases be? That’s ultimately an empirical question. If the caps aren’t high enough, the problems attracting workers will remain. If the cap for a job is too high, there will be fierce competition to get the job. Either way, there will be clear signals that something is wrong.

Fortunately, I think our lack of rationality actually works in our favor in this case. People aren’t looking to be precisely compensated for the extra burdens of difficult or unpleasant jobs. I believe that the important thing is that there is a pay benefit for doing unpleasant work. The magnitude of the benefit isn’t all that relevant.