6/3/2015 What's Really DrivingIncome Inequality - Bloomberg
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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
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Whatdidtheyfind?From1978to2012,effectivelyalloftheincreaseinwageinequalitynationallyhasbeenduetoincreasingdisparitiesfromcompanytocompany.Astheresearchersnote,thewagegapbetweenthemosthighlypaidemployeeswithinthesefirms(CEOsandhighlevelexecutives)andtheaverageemployeehasincreasedonlybyasmallamount,refutingoftmadeclaimsthatsuchwideninggapsaccountforalargefractionofrisinginequalityinthepopulation.Theresearchersalsofound,bytheway,thatthemalefemalewagegapwithincompanieshasshrunknoticeably.
Ifwewanttounderstandtrendsininequality,wehavetoaskwhysomecompaniesareoutpacingothers.
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