Think you're earning what you're worth? A recent MIT study suggests otherwise, revealing a surprising disconnect between what employees think they could earn on the market and the reality of industry wages. According to the MIT study led by Simon Jäger, an economist at MIT, workers are in the dark about what their peers are making, often grossly underestimating the potential paychecks out there. Believing their next gig will barely bump their salary by 1 percent, many sit tight in their current roles, unaware of a 10 percent wage increase awaiting in the wings at other firms.
Challenging economic theories that assume workers accurately understand their own value, this study stretched across from Germany could also hold true for the U.S. – a place where wage inequality looms larger. Staying put in lower-wage jobs, employees don't send enough competitive pressure to rouse their employers to hike up the pay. With barely any of the workers responding believing they rake in salaries either well above or below the 50th percentile, the salary scale they imagine is far narrower than reality, the false belief identified by Jäger and his team could be keeping wage growth at bay and job seekers less mobile.
When workers in this study were pulled from their mistaken views on wages and shown the actual financial incentives in the job market, they became more interested – with over 2 percent indicating a willingness to change jobs. "This updating of beliefs causes workers to adjust their job search and wage negotiation intentions," emphasized MIT's Nina Roussille regarding the motivations that shifted after this reality check, according to MIT News. By surveying employees and analyzing official job and salary data, the researchers quantified the significant disparity between actual job pay and workers' perceptions, directly connecting false wage beliefs to missed earning opportunities.
Employers, don't breathe easy yet – the paper raises questions about your side of the coin too. Are bosses blissfully ignorant of the wage wonders their rivals whip out or do they keep the rose-colored glasses on too? Past guessing the salaries at competition, MIT researchers are peeling back layers on manager beliefs next. The research powering this inquiry got its juice from sources like the Sloan Foundation's Working Longer Program, Stiftung Grundeinkommen, and the German Research Foundation. Moreover, as Jäger told MIT News, the Covid-19 job market scramble in the U.S. – where many found themselves in cushier pay brackets – hints at long-running underawareness about better offers in the employment ethers.
