Why Not Agents For All?

Top actors, writers, and athletes have agents, who help them find good jobs, in exchange for a small part of their income. But having an agent is pretty rare – why don’t the rest of us have agents?

You might think its only worth paying an agent 5% of your income for jobs where wages vary by large factors, and that most people’s wages are pretty much set by their occupation, education, etc. Not true, however. Consider: workers in the same occupation, with the same observable experience, school, etc. can easily earn 30% more, or 30% less, just based on the industry they work in. For example, in the auto industry both janitors and truck drivers make twice the salary of janitors and truck drivers in the “eating and drinking place” industry. (More on industry wage differences below.)

Having an agent can also signal high quality, as agents usually won’t represent low quality folks. Also, while prior employers, often avoid being honest about your prior experience to potential future employers, agents can have incentives to be more honest, being repeat players with reputations to protect.

For an interesting example of ordinary people with “agents”, consider Giving What We Can (GWWC), an organization that “asks members to donate at least 10% of their income to the most effective charities.” Since GWWC wants to promote charity donations, it wants its members’ to have high incomes, all else equal. So affiliated folks advise members on how to find better paying jobs. If they put enough effort into this, I can believe members might actually earn more on net than they otherwise would, even after accounting for their 10% charity donation.

That promised info on industry wages differences:

Interindustry wage differentials have largely remained a mystery, although research dating back to 1950 has found that industry affiliation accounts for a significant portion of wage differentials after controlling for education, race, sex, and other “human capital” characteristics of workers. The firms in some
industries pay both low skilled and high skilled workers wages that are considerably above the average than those in other industries.

Most of what is known about wage differences among industries can be summarized in three basic facts:

  • Industry wage differentials are amazingly uniform across occupations. For example, janitors and managers, alike, appear to receive similar wage differentials, depending on the industry in which they work.
  • Industry differentials have been remarkably stable over time; wage differentials are largely unchanged from the pattern of the 1950s.
  • Industry wage differentials are positively associated with industry characteristics including capital intensity, industry concentration (based on a four-firm concentration ratio), profitability, unionization, and low percentages of women. …

Among the industries included in the table [2], the wages paid to given occupations range from 32 percent above those of the miscellaneous plastics manufacturing industry in motor vehicles manufacturing to 72 percent below the wages of miscellaneous plastics manufacturing in shoe stores. ..

Within the services sector, most of the occupations having the lowest correlation with the all-occupation wage differential are related to physical production activities, while those having the highest correlation are occupations engaged in coordination functions, including purchasing managers, general managers, personnel, training and labor relations specialists, and clerical worker supervisors. Within the manufacturing sector, occupations having the highest degree of correlation with the all-occupation wage differential are occupations that coordinate production activities, including industrial production managers, personnel, training, and labor relations specialists, supervisors of operators, and production inspectors. Occupations having the lowest degree of correlation with the all-occupation industry wage differential tend to be non-production-related occupations, including computer support specialists, adjustment clerks, and receptionists. (more)

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  • spindritf

    Doesn’t a consultancy shop fulfil a similar role? They represent (rent out) their employees, take a cut of their earnings and pay them the rest.

    I don’t mean the kind of consultancy like auditing companies do, but rather more of an outsourcing consultancy, like a software one.

    • Trevor

      This is exactly correct and scalable to employers more generally

  • Trevor

    This is the case for most employers. I could (for example) make cars all by myself, but division of labour, economies of scale etc make it more efficient for several of us to work for Ford instead. In return, Ford take a cut of my productivity. As long as my marginal productivity is greater than my marginal cost, Ford will employ me. And as long as Ford’s cut is not prohibitively high, I will work there. Your post simply describes labour exchange under capitalism.

    • Doug S.

       The question being asked is why janitors working for Ford aren’t paid the same as janitors working for Goldman Sachs, even though they’re both doing basically the same thing.

      • http://disputedissues.blogspot.com/ Stephen R. Diamond

         When employees are disgruntled about pay, management’s most effective reply has been that the firm lacks funds for higher wages. If some workers do better than the industrywide standard, others will be able to complain, “If them, why not us?” 

      • Trevor

        Is there evidence that this is the case? In my experience, cleaning, security etc is often contracted through an agent (G4S etc) and wages are the same for workers cleaning at For or Goldmans

      • V V

         I suppose this depends on the level un unionization in the industry and, for industires that are concentrated in specific geographical locations, on local factors.

  • anon123

    The agent has an incentive to maximize income, not total utility for a job including reasonable work hours, vacation time, and enjoyable atmosphere.

    Pro atheletes have to lead very focused lives, earn a lot of money fast, and retire young.

  • Cambias

    This was one of the original purposes of unions — to act as a group agent for the workforce. Unfortunately, just as some authors and actors have discovered, the agent’s interests aren’t always in line with the client’s. 

  • Wonks Anonymous

    The variation by industry is one main reason Peter Dorman doesn’t believe that occupations are characterized by compensating differentials for risk.

  • Daniel

    Table 1 in the linked paper is a very cool dataset. Here is a scatterplot-matrix: http://people.mokk.bme.hu/~daniel/incomedifferentials.scatterplot.matrix.pdf

  • MPS17

    Actors engage in lots of small jobs — a movie here, a commercial there, a guest visit on a TV series, maybe theater, plus promotional appearances and maybe speeches and fundraisers, etc. — and I think it makes sense that managing all of the various contracts implied by this can be a job itself.  Compare to a “typical” worker, who works for years for just one employer; i.e. one “contract” per several years, as opposed to dozens of “contracts” per year for a successful actor, not to mention the hundreds of possible contracts that must be weighted to select those dozens.  Add to this that the entertainment business is heavily specialized:  a movie producer might want a particular type of actor, etc, and so there is also room for professional specialization involved with connecting the producers with the particular kind of talent they are seeking.

    So, actors having agents makes perfect sense to me, even as most occupations don’t have agents.

    However, in light of this, I don’t know why athletes have agents.  It seems to me their business isn’t like this. I’d guess it’s because athletes receive very high pay relative to their education (preparation for negotiating contracts of such value as they have), and so they’re just buying a service that is worthwhile for them but wouldn’t be worthwhile for most people.  Although athletes jobs are perhaps not so simple, given promotions and sponsorships etc.  

    There are some professions, though, where it does seem there is room for agents.  Like contractors (for home maintenance / improvement).  These are people who also do dozens of different jobs a year.  They are also specialized, and with special aesthetics.  It would seem very worthwhile to have a few agents, who a given person would would explain the work they want done to, and then the agent connects they with just the right contractor.  Except that’s sorta how contractors themselves work:  the contractor listens to the work you want done, and selects the various specialized professionals (plumbers, painters, decorators, etc) to get the job done.  The analogy isn’t perfect and I think it’s interesting look more carefully into why.

    • V V

       I suppose that agents put significant effort per client, so that they can only manage a few of them. Therefore, unless the client has a very high pay, they are not profitable, at least compared to other recruitment operations that have larger scales.

      Contractors are typically companies, not indivduals, so they probably perform the agent functions internally.

  • Andy

    There are recruiters/headhunters in many fields. They can help you to find a job, but of course they usually don’t care about maximizing your wage. However if you do have a minimum wage that you will work for, they certainly take that into account. Overall I’ve had pretty bad experiences with having them manage my job. I suspect the potential payoff of a typical worker is just too small for them to spend a lot of time on it.

  • Granite26

    5% of your income has to be worth the agent’s efforts.  Unions and Headhunters fill the role on the low end here, basically commoditizing employees to make it efficient enough to be profitable.

    Having an agent signals high mobility, not a desired quality in many fields.

    Additionally, the fields you mention are all highly public figures.  Isn’t bartering a low status activity?  Having someone to do the bartering is likely a status increaser, as well as likely to keep tales of your greed out of the press.

    I work in software, and there are a lot of headhunters.  I’ve had experience with numerous flavors of engineering where the contractors essentially rely on the same headhunter to work out their jobs in advance.

    Finally, don’t high end business executives have agents too?

  • JW Ogden

     1. If wage differentials are positively associated industry concentration, it confirms a bias that I have that anti-trust tends to increase earning differentials in a country?
    2. Some employment agencies charge the employee a percent of his wages.  This could be considered a cheap from of agent?

  • http://www.facebook.com/daniel.carrier.54 Daniel Carrier

    My initial thought is that it wouldn’t be worth while unless 5% of your income is enough to hire an agent. Then I realized that since most jobs last a lot longer than something like the length of time it takes to film a movie, an agent would have a lot less work, so they could get more clients and 5% of your income will be more than enough.