Are You Paid What You’re Worth?

How do you know if your pay adequately reflects your contributions to your employer’s profits? In many instances, you don’t. Your employer has more and better information than you do about how your salary and bonus compare to others in your field, to others in your office, and relative to the company’s profits in any given year. You can narrow the information gap a bit if you’re willing to buy salary reports from compensation sources.

For example, at $200, a quick-call salary report from Economic Research Institute will offer you compensation data for your position based on your years of experience, your industry and the place where your company is located.

Source: CNN, April 3, 2006

a. Explain the role that asymmetric information can play in worker wages.

b. What adverse selection problem exists if a firm offers lower wages to existing workers?

c. What will determine how much a worker should actually pay for a detailed salary report?