Job complexity drives productivity and also inequality

From Individual differences in output variability as a function of job complexity. by John E. Hunter, Frank L. Schmidt, and Michael K. Judiesch. Abstract:

The hypothesis was tested that the standard deviation of employee output as a percentage of mean output (SDp) increases as a function of the complexity level of the job. The data examined were adjusted for the inflationary effects of measurement error and the deflationary effects of range restriction on observed SDp figures, refinements absent from previous studies. Results indicate that SDp increases as the information-processing demands (complexity) of the job increase; the observed progression was approximately 19%, 32%, and 48%, from low to medium to high complexity nonsales jobs, respectively. SDp values for sales jobs are considerably larger. These findings have important implications for the output increases that can be produced through improved selection. They may also contribute to the development of a theory of work performance. In addition, there may be implications in labor economics.

Benjamin Todd summarizes the findings in How good are the best?

Output is measured in a variety of ways. For salespeople, it’s the dollar value of what they sell. For doctors, it could be the number of patients seen and treated. Other studies have been done with standardised tests, supervisor ratings and many other metrics. I should flag that it’s not clear how well these metrics correlate with the real value produced by jobs, but I’ll run with them for now.

What they found is that in low complexity jobs, workers’ outputs do not vary much, and the best worker is usually not much better than the average worker. As the jobs become more complex however, there’s more and more variation, and the difference between the best worker and the average grows. For example, in low-complexity jobs the top 10% of workers produce 25% more than the average, and 75% more than the bottom 10%. For high-complexity jobs, such as professional and sales jobs, the difference is much larger. The top 10% of workers produce 80% more than the average, and 700% more than the bottom 10%.

That is very interesting - unskilled jobs have a low standard deviation in productivity whereas complex jobs have a high standard deviation in productivity.

The implication is that as an economy moves from a simple economy to a more complex economy, one should see increasing levels of inequality. For example, a country where 90% of the population is involved in agriculture should have much lower productivity and much lower inequality than a country with a more complex economy such as 10% agriculture, 20% manufacturing and 70% services.

And that is exactly what we see in cross-country comparisons. Richer countries have greater levels of inequality and economists have been debating for some years why that should be the case and what might be done about it. What this paper by Hunter et al suggests is that it is not higher productivity that is driving greater inequality, which is the way we usually think about this.

The causative flow is different. Greater productivity is a consequence of greater complexity and it is greater complexity that is actually driving the increase in inequality.

That poses a series of provocative questions and challenges given what is likely to happen in the future. With more global trade, faster acceleration of technology development, greater complexity associated with the digitization of the world, etc. we should anticipate that the most complex economies will indeed become yet more complex and at accelerating rates. Thus we should anticipate dramatically more inequality in the future. And this is necessarily so.

If we cannot find a way to increase productivity without increasing complexity, then the problem of inequality is here to stay. That shifts the question from "What do we do to decrease inequality?" to a different focus. In the past, while inequality was rising, absolute productivity was rising for everyone as well. Everyone was becoming better off, but some were becoming much better off.

I think there is a real question in the future when rising complexity drives further inequality, whether all jobs continue to increase in productivity. In other words, we may face a new era where some jobs remain stagnant (or worse, regress) while the most complex jobs continue to drive differential productivity and therefore differential compensation.

How do we maintain the social contract under such conditions? If we focus only on reducing inequality, we will fail because of the link between inequality and complexity. In other words, redistribution policies would subvert productivity increases.

The only means of increasing the productivity of low complexity jobs that I can see would be through improved behavioral attributes at the individual level, improved infrastructure at the societal level, and improved institutional performance at the legal and governmental level. Certainly not impossible, but that is not where we are focused right now. We are focused mostly on redistribution.