Economics | Business scientists who become managers reduce the salaries of employees – and they are not particularly useful for business, the study says

A manager’s education affects how much an employee earns, according to a study conducted in the United States and Denmark.

If own salary development looks bad, the reason may be in the training of the company’s boss level. Findings from the United States and Denmark show that the salaries of employees in business companies with business-educated managers decrease.

Professor at MIT University Daron Acemoglu and he and his colleagues report in their research article that workers’ wages declined by 6 percent in the United States and 3 percent in Denmark within five years of a manager with a business degree taking over.

The share of costs caused by employees also decreased by several percentage points in both the United States and Denmark.

“We show, that non-business-educated managers share profits with their employees, while business-educated managers do not,” the researchers write in a report published by the U.S. National Institute of Economic Research’s NBER in the studywhich has not yet been peer-reviewed.

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The researchers calculate that the business education of business leaders explains a considerable amount of why the share of employees in the national economy’s income has shrunk in recent decades. According to the estimate, 20–30 percent of the change in the United States and Denmark goes into this peak.

KitsaAlle the salary policy cannot be justified by the fact that bosses who have attended business school are particularly profitable for the company’s business operations.

The companies they lead do not stand out in any way from a business perspective: according to the study, turnover, productivity or investments do not grow any more than other companies.

However, the owners benefit. The return on capital was 3 percentage points higher in the United States and 1.5 percentage points higher in Denmark over a five-year period in companies managed by economists.

The managers’ actions are not explained by the fact that people who want to reduce employees’ incomes would apply for business studies.

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The analyzes show that the reason is precisely the education received by business scientists.

Research does not give an answer to what in education encourages solutions that reduce the wage earners’ share of the pot. Researchers think that business schools have turned to favoring the idea that the task of business management is to maximize the profits of the owners.

This doctrine was developed by an economist in the 1970s Milton Friedman, which subsequently gained a large following. Acemoglu and his colleagues write that due to the effect of the doctrine, some managers no longer see employees as part of the company, but as a cost item that can be saved.

Published in Tiede magazine 7/2022.

Correction at 4:46 p.m.: Added information that, while business scientists are not particularly beneficial to business as managers, they are beneficial to business owners due to a higher return on capital.

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