"Equilibrium" is a term that has special meaning in economics,
although its definition can seem somewhat tautological: It’s the
state of affairs where there is no impetus or force for change. The
textbook example is where the price in a given market reaches the point
where supply exactly matches demand.
The "tautological" aspect is that of course supply
always exactly matches demand, insofar as every item sold is bought and
vice versa. But the subtler meaning depends on analyzing the situation
dynamically, not statically, as it is only from the static perspective
that the equilibrium appears tautological. From a dynamic perspective—which
simply means asking what, if anything, will happen next—it could
be the case, for example, that a new and more productive factory is about
to be opened, increasing supply and driving the price down; or that a
new use was just discovered for the commodity in question, raising demand
and thus price; or that a cheaper substitute has been perfected, decreasing
demand and price although the market participants themselves have changed
precisely nothing.
The interesting cases arise when whether or not one has achieved
equilibrium is unclear. We now have such a case, in the form of
the decision by the UK’s Addleshaw Goddard to abandon the "London premium"
traditionally paid its City partners above what it pays its equivalent
partners in, say, Leeds or Manchester. The rationale for the (now
obsolete) premium was to recognize the higher cost of living and remain
competitive in recruitment. The rationale for the new "equal means
equal" policy is:
“Closing the gap between partners in the North and South is
a way of banging the drum internally that we’re one firm,” said managing
partner Mark Jones. “We account as one firm, there’s no office division
in terms of the figures, so there’s no need for two points figures for
entering the equity. […] “It’s more important to have one
partnership than to squabble over London weighting.”
Admirable, sane, clear-headed, laudable indeed—but sustainable? In
other words, a new "equilibrium" capable of enduring indefinitely, or
a false equality destined to collapse as surely as price controls bring
rationing and prohibition brings black markets?
The answer to the question, as I implied, is not obvious. One
(un-named) lawyer at another firm predicted Addleshaw’s City partners
would ultimately object, if not rebel: Compared to the northern
partners, "they’re effectively being paid less." But
Jones characterized precisely the same fact as white, not black: If
it means that "our partners in Leeds and Manchester are paid super-competitively
we see [that] as an advantage, not a problem.”
My own prediction? It will endure. Internal labor markets
within firms are never constructed or maintained with Delphic precision,
and no one realistically expects them to be. Given that Addleshaws’
motivation for this is "One Firm, One Partnership" (as opposed to, say,
caving in to a naked power grab by the north), I think the battle for
the hearts and minds of the City partners has likely been won.
There’s a larger point as well: New York, London, and Hong Kong
will always be more profitable places to be than Chicago, Manchester,
or Sydney. Firms that do not address that "disequilibrium" with
clear-eyed principles are sowing the seeds of divsion and rebellion.
