In contrast, social structural theory contends that pay inequalities are determined by the position of jobs in the status structure of the organizational hierarchy. Since jobs are assigned status based at least in part on the same factors that economic theory sees as determiners of compensation, sociological theory, like economic theory, suggests a relationship between human capital and job salaries. But, while economic theory suggests a direct relationship between the two, sociological theory suggests an indirect one that is mediated by job status. Rewards are distributed according to social norms in order to direct motivation in socially valued directions (Davis and Moore 1945). Inequalities are ways to buttress the normative basis of a social system (Dahrendorf 1968), and these processes operate by social, not economic, principles. Thurow (1975) develops the economic implications of the sociological approach to income inequalities. He notes that individuals develop their expectations about equity based on past history: Distributions of the past are considered fair until proven unfair. This explains why inequalities in the distribution of economic rewards that are much larger than inequalities in the distribution of personal characteristics seem to cause little dissatisfaction, and why people tend to ask for rather modest amounts when asked how much additional income they would like to be making, (p. 110)
Moreover, individuals' expectations are relative to their reference groups: "The happiest people seem to be those who do relatively well within their own reference group rather than those who do relatively well across the entire economy" (p. 110). For example, in his study of several countries, Esterlin (1973) finds that "happiness is almost completely dependent upon one's relative income position within one's own country and almost not at all dependent upon whether one is located in a high-income country or a low-income country" (Thurow 1975, p. 105). In other words, individuals are not so much motivated to attain a particular amount of income as to attain a level of income relative to their reference group.
This approach leads to a very different model for compensation systems. Since it is happiness, not dollars per se, which employers seek to maximize in compensating individuals for their productivity, and since individuals' happiness is derived from their income relative to their peers, compensation systems will seek to make the earnings relationships among jobs correspond to normative values, which are formally expressed by the job status system. Although productivity and productive capacity (human capital) may be components of the norms which define a job's value and, consequently, command more pay, the amount of payment may not be the dollar value of their productive capacity, but only an amount proportional to the job's relative standing on the job status scale (also see Lazear and Rosen 1981).
This sociological model suggests that human capital and job salaries will correspond in terms of rank order, not absolute magnitudes. The ordinal ranking of a job's human capital determines its ordinal position on the job status scale, which, in turn, determines the ordinal ranking of the job's salary. By the sociological explanation, the absolute magnitude of a job's human capital has little impact on job status assignments unless it changes the job's rank order relative to other jobs. Similarly, job status has no intrinsic relationship to the absolute magnitude of a job's salary, only its ordinal ranking. The absolute magnitudes of job salary differences are determined by other considerations (market considerations and equity perceptions, cf. Rainwater 1974). Unlike economic theory, which suggests that human capital and job salaries correspond in dollar value, sociological theory suggests that the distributions of the two correspond. Rather than the amount of human capital resources defining the dollar value of jobs, sociological theory suggests that it is the variation in human capital resources among jobs which is related to the variation in job salaries.
Although both views predict that job composition affects job salaries, they predict a different relationship. First, human capital theory predicts that the relationship will best be described by unstandardized regression coefficients: Organizations will pay for the dollar value of human capital. In contrast, social structural theory predicts that the relationship will best be described by standardized coefficients: Organizations will pay for the rank order of human capital. For example, while human capital theory contends that each additional percentage concentration of college graduates adds a certain dollar increase in the value of the job, social structural theory contends that jobs that are one standard deviation above the mean in their college graduate percentage will be paid a salary a certain percentage of a standard deviation above the average salary at that level.
Second, the two theories differ in the stability they attribute to job composition. Human capital theory predicts that the value of human capital will vary with the supply and demand for it: A tight external labor market (1965-1969) increases the value of a college education and decreases the value of tenure (as starting salaries increase to recruit new employees), while the reverse is true in loose labor markets (particularly given an oversupply of college graduates, such as after 1972) (Freeman 1976). In contrast, social structural theory contends that organizations tend to preserve the same relationship between human capital composition and job salaries over time as long as the organization maintains the same status structure. As internal labor market theory contends, the organization's status structure defines the pay relationships in the firm, relatively insulated from external labor market processes (Doeringer and Piore 1971).
Third, the two theories also differ in their predictions about the strength of the influence. Human capital theory suggests a strong relationship between the amount of human capital in a job and job salaries. In contrast, the social structural theory suggests that the individual "human capital" in jobs is largely incidental to the process and, at best, explains a relatively small part of the value of jobs. Job salaries are determined by historically determined social normative evaluations which are only to a small degree determined by individual "human capital" attributes. The historically determined value of jobs depends on a diversity of other factors that cannot easily fit under the rubric of human capital. Perhaps the foremost among these are social discriminations based on sex and race, which are explicitly examined.
Finally, social structural theory suggests that the relationship between the human capital composition of jobs and job salaries is mediated by job status. This means that a change in the human capital composition of a job will not alter the salary a job offers unless it also alters the status of the job. In contrast, human capital theory suggests that job status systems are largely derived from and responsive to economic forces and do not contribute much uniquely to earnings if one controls for the human capital associated with (and presumably determining) the job's status. According to an economic perspective, instead of being rigid hierarchies into which individuals are allocated, status systems are constantly in flux, responding to changing economic circumstances.
The present study affords an ideal opportunity to test the competing predictions of human capital and social structural theories. Although Thurow finds evidence for normative influences in analyses of the entire economy, normative influences are even more salient and powerful in the context of a single organization. In a single organization, individuals are much more likely to have a common culture, with common perceptions, values, and norms about various kinds of work. Moreover, a single organization is more likely to implement a coherent compensation system than would be manifest in the general economy.
Furthermore, in focusing on jobs as the unit of analysis, normative influence is more likely to be discerned. Although normative influences operate at both individual and aggregate levels, normative influences at the individual level are affected by individual characteristics which are difficult to measure. By analyzing the aggregate level of job compensation, difficult-to-measure idiosyncratic influences are avoided, and the regularities in the normative system's effects may be detected.
It should be noted that the normative theory does not explain the origin of norms. Norms are taken as given, passed on through the history of past practice and past beliefs. Different theorists would have different explanations of their origins. Marxists would attribute them to the capitalist social relations of production, while idealists would attribute them to general ideological beliefs in the culture. This is an issue for sociology of knowledge, which is beyond the scope of the present study.
