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Alright, in this video we're talking about surveys and labor markets.
So first of all, what's a compensation survey?
A compensation survey is a survey designed to show how comparable employers pay for
comparable jobs.
So what does that mean?
Well what would the ideal survey look like?
Well the ideal survey would have comparable benchmarks.
That means that they would have the same industry and the same geography and
the same jobs.
That's because even if you're trying to, for example pay a compensation and
benefits manager a certain, you're trying to benchmark their pay,
their pay might be different in finance versus construction, versus small stores,
or they might be different in big cities versus small cities.
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The ideal is that survey would also have the right information.
They'll be matched on the percentiles they are interested in.
So for example, if you are interested in paying the market median
a compensational survey what the median worker is paid.
If you're interested in paying more than 75% of your competitors, then
the ideal survey would also tell you what the 75 percentile of the market pay is.
Also, the ideal survey would also give you the whole pay mix.
They won't just tell you what your competitors are paying in terms of
base pay.
But, it'll also tell you what your competitors are targeting in terms of
their short-term incentives, their long-term incentives as the stock options,
and their benefits.
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Also, the ideal survey would comply with antitrust laws.
And, the ideal survey probably doesn't exist.
If you want to survey that has the same industry, the same geography,
the same jobs, and has all this information,
that's probably going to be pretty hard to come by.
So let's double down on antitrust laws.
Those are pretty important.
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So first of all, when we're administering a salary survey,
we might be concerned that we will be colluding with other employers.
And this is the basis of the Chairman Antitrust Act.
But employers also need to know how they need to pay
their workers in order to be competitive.
And so the Department of Justice and
the Federal Trade Commissions created these Antitrust Safety Zone guidelines.
The first element for that guideline is to have a third party do that,
such as an academic or a trade organization.
The second element is to make sure the data are at least three months old,
that way you're not updating your information or
your compensation based on benchmarks in real time.
Third, you want to make sure that there's enough data and that it's aggregated.
That way, you're not able to directly match your
pay on any one benchmarked employer.
That could lead to allegations of following a wage leader, which also
could potentially put you at risk of violating the Sherman Antitrust Act.
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Next, let's look at two labor markets.
A labor market is a market in which firms demand labor and workers supply labor.
And why learn about labor markets?
Well first of all, in the grand scheme of things,
labor markets are what determine pay.
There's a second really important reason too.
In that, we can't always find perfect benchmarks for our jobs.
And so understanding how labor markets work will help us understand
when we will need to adjust our pay upward or downward based on our benchmarks,
so we can come up with better approximations.
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So what do labor markets look like?
Well first of all, a labor market will map wage on the y axis and
the quantity of labor or how many people are on those jobs, on the x axis.
And the first thing that a labor market of course, will have is the supply of labor.
The supply of labor's upward slope being because to attract more workers into that
job, you're going to have to pay them more.
You're only going to get so
many philosophers if you don't pay them very much.
There's also a downward sloping demand for labor.
The intuition behind that is that as you get more
people who are entering those jobs, employers are willing to pay less and
less for each additional person to do those jobs.
You only need so many shoe shines, or philosophers, or academics in the world.
Now here's one of the keys to understanding labor markets.
You don't actually see labor supply and
labor demand directly, all we do is we know the world that we live in.
We observe the intersection of labor supply and labor demand.
What do we mean by we observe the intersection of labor supply
and labor demand?
Well for any labor market we can actually
count the number of people it is who hold those jobs in our labor market.
We can count how many philosophers there are in our labor market.
We also know how we can get a rough idea of how much they're paid.
As we can enumerate them, we can count them, that's our quantity.
And we can tell how much they're paid.
But of course if we've been out into the labor market,
we know that not all people in those jobs are going to be paid equally.
They're going to follow some distribution.
And that distribution is what we'll get from administering our salary survey.
We'll get a survey and there'll be a lot of people who are paid near each other in
the middle, and they'll be a few outliers, either high or people who are paid less.
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And so you might ask, why is that a distribution?
Why aren't all people who are in that job paid exact same wage?
Well that's because workers aren't commodities.
That is, not all lawyers look exactly like every other lawyer.
Not every doctor looks like every other doctor.
There's different specialties, there's different geographies, or
costs of livings.
And all these things aren't going to be taken
into account when we're looking at any one labor market benchmarking survey.
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Also, employers can pay two people who look alike very differently, as well.
This can speak also to the organization's strategy.
So for example, an organization might choose to pay their workers
more than the median worker in their benchmark data, so that way they can be
more selective in who they bring in and they can also have higher retention.
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And so kind of the big idea here is that when we're talking about doing a survey,
we're talking about taking a little piece or
a little sample from this broader labor market.
We're trying to figure out what the wage is in this competitive labor market.
And so next up,
we're going to determine what it is that determines labor supply and labor demand
and how those can inform how we make adjustments based on our survey data.
Thanks.
John W. BuddProfessor and Director
Larry BourgerieSenior Lecturer
Amy SimonSenior Lecturer
Alan BensonAssistant Professor
