New York, London, and Hong Kong vs. Everywhere Else

"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.