From Wallets to Wages: Consumer Income, Job Design, and Pay Disparities

Abstract

Pay differences between organizations are a key source of wage inequality. I propose a novel account of these differences by starting from the consumers that these businesses serve. Firms that serve high-income consumers specialize jobs into higher-paying and higher-skilled positions focused on quality, while those that serve lower-income consumers emphasize cost minimization by requiring workers to perform a wider range of general tasks. Matching consumer foot traffic data and establishment-level wage records, I find that establishments serving higher-income consumers pay their workers more. This effect holds comparing among establishments in the same neighborhoods and industries. Longitudinally, establishments increase wages when they shift toward higher-income customers. Analysis of online job postings further reveals that jobs at higher-income-serving firms involve a narrower set of tasks that command higher market value. These findings show how consumer markets shape firms’ internal job design and contribute to pay inequality across organizations.