Economic Inequality and the Firm

Even if initially tolerable, existing inequality can become a significant source of traps and perverse patterns when analyzing labor markets as well as the structure and behavior of firms. Firms can exacerbate inequality through various channels: some related to innovation, others linked to the market—such as market power and pay structures—and still others tied to institutions, including unionization and rent-seeking. Because these channels operate beyond the control of individuals, the resulting inequality may be considered morally unacceptable. For example, labor markets tend to bifurcate between “insiders”—workers with stable, well-paid jobs, strong benefits, and institutional protections—and “outsiders”—those trapped in precarious, low-wage work with little security or upward mobility. Gig workers in industries such as cleaning, food delivery, courier services, and passenger transport are a case in point. While unions remain a crucial counterbalance to employer power, they sometimes reinforce this divide rather than mitigate it, reducing mobility and giving rise to intolerable inequality. This chapter also explores the ratio of CEO-to-worker pay, which—especially in the United States—remains a contentious issue due to its impact on inequality and the questionable motives behind it.