Why Has Inequality Been Growing?

By artappraiser on Tue, 12/06/2011 - 11:20pm |

By Robert H. Frank, Slate, Dec. 6, 2011

How technology and winner-take-all markets have made the rich so much richer.

(The first part of this series described how growing income disparities have made it more expensive for middle-income families to achieve many basic goals, such as sending their children to a decent school. Today’s installment discusses the forces that have caused income disparities to grow in recent decades. This essay is adapted from Robert H. Frank’s recently published book, The Darwin Economy.)

Effective remedies for growing income disparities require a clear understanding of the forces that have caused them. [....]

[....] Jacob Hacker and Paul Pierson have argued that explosive salary growth at the top has been fueled by a more lax regulatory environment purchased with campaign contributions. That’s a spot-on description of what happened in the financial services industry, which is of course the principal target of the OWS movement.

But it’s an unsatisfactory account of why inequality has been rising in other occupations. The same pattern of income growth we’ve seen for the population as a whole has been replicated for virtually every subgroup that’s been studied. [....]

Pay by relative performance is one defining condition of what we call a winner-take-all market. A second is that rewards tend to be concentrated in the hands of a few top performers, with small differences in talent or effort often giving rise to enormous differences in incomes. Both features show up in Sherwin Rosen’s description of the market for classical musicians: [....]

(Tomorrow: Remedies for rising income inequality.)

URL:

http://www.slate.com/articles/business/moneybox/2011/12/how_technology_and_winner_take_all_markets_have_made_income_inequality_so_much_worse_.html

278 reads

Why Has Inequality Been Growing?

Sections

Bloggers