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The most important recent research on income inequality is not, as news reports might suggest, Thomas Piketty's famous book. It is new research out this week from a team of economists explaining the role that companies play in wage differences.
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6/3/2015 What's Really DrivingIncome Inequality - Bloomberg View
http://www.bloombergview.com/articles/2015-05-26/what-s-really-driving-income-inequality 1/2
Themostimportantrecentresearchonincomeinequalityisnot,asnewsreportsmightsuggest,ThomasPiketty'sfamousbook.Itisnewresearchoutthisweekfromateamofeconomistsexplainingtherolethatcompaniesplayinwagedifferences.
Thepopularconceptionthatincreasinginequalityisexplainedmostlybywideninggapsbetweentopearnersandlowerearnerswithineachcompanyis,toputitgently,wrong.It'snotthatyourmanagerisincreasinglyearningalotmorethanyouareitsthatcompaniesarebecomingeverlesssimilartooneanother.
ConsiderAppleandMcDonalds.ThePikettyperspectiveisthatinequalityrisesbecausethetopexecutivesatbothcompaniesgetmuchbiggerraisesthantherankandfile.ButtheotherpossibilityisthattheaveragepayatApplerisesalotrelativetotheaveragepayatMcDonalds,evenasthewagegapswithineachfirmstayaboutthesame.
Thatsadifferentstory,anditappearstobeamoreaccurateone,asthenewresearchconfirmswiththemostdefinitivedatasofar.
Theresearchers,ledbyJaeSongoftheSocialSecurityAdministrationhadaccesstoconfidentialSocialSecurityearningsdata,includingcompanies'taxidentificationnumbers.Theywerethusabletolookatallearnings(notjustthosecappedatsomethreshold)andtheywereabletoexaminewholefirmsratherthanjustestablishments(withthedifferencebeingthatacompanymayhavemultiplelocations).
COMPANIES
What'sReallyDrivingIncomeInequality
ByPeterR.Orszag
MAY26, 201511:27AMEDT
aA
6/3/2015 What's Really DrivingIncome Inequality - Bloomberg View
http://www.bloombergview.com/articles/2015-05-26/what-s-really-driving-income-inequality 2/2
Whatdidtheyfind?From1978to2012,effectivelyalloftheincreaseinwageinequalitynationallyhasbeenduetoincreasingdisparitiesfromcompanytocompany.Astheresearchersnote,thewagegapbetweenthemosthighlypaidemployeeswithinthesefirms(CEOsandhighlevelexecutives)andtheaverageemployeehasincreasedonlybyasmallamount,refutingoftmadeclaimsthatsuchwideninggapsaccountforalargefractionofrisinginequalityinthepopulation.Theresearchersalsofound,bytheway,thatthemalefemalewagegapwithincompanieshasshrunknoticeably.
Ifwewanttounderstandtrendsininequality,wehavetoaskwhysomecompaniesareoutpacingothers.
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