One answer is that these employees may care, often subconsciously, about things besides pay. The most productive workers in a group, for example, often appear to value their status, perhaps because they enjoy greater self-esteem and respect than the least productive workers. To bid successfully for the high achievers, a rival employer might not only have to increase their pay, but also place them in a group where they continue to enjoy a high ranking.

In a free market, however, no one can be in the top half of any group unless others agree to be in the bottom half. And if people prefer not to occupy low-ranking positions, filling these positions would require extra compensation. The rival’s offer, then, would resemble the original pay pattern.

The upshot is that top-ranked workers may well stay put. The high ranking they enjoy is more than enough to offset their sacrifice in pay. Similarly, their less productive co-workers may find it onerous to be at the bottom of the ladder, but they are compensated for that fact by their premium wages.

So, in effect, private markets are already applying an implicit progressive tax in the way they pay workers. And, in the process, they serve the interests of everyone in the hierarchy. The alternative would be costly social fragmentation.

CAN anyone doubt that high rank has value, not just among groups of co-workers but also in society? For starters, high-ranking members of society, who also tend to have the highest incomes, know they will be able to send their children to the best schools and have access to the best health care. Low-ranking members enjoy no such confidence.

It’s much harder, of course, to organize new societies than to start new businesses. But that doesn’t mean high-ranking positions in the real world should be available at no cost. They are possible only when others bear the costs associated with a low social ranking.