6/3/2015

What's Really DrivingIncome Inequality - Bloomberg View

C OMP A N IE S

What'sReallyDrivingIncome
Inequality

MAY26,201511:27AMEDT

ByPeterR.Orszag

aA

Themostimportantrecentresearchonincomeinequalityisnot,asnewsreportsmightsuggest,
ThomasPiketty'sfamousbook.Itisnewresearchoutthisweekfromateamofeconomists
explainingtherolethatcompaniesplayinwagedifferences.
Thepopularconceptionthatincreasinginequalityisexplainedmostlybywideninggapsbetween
topearnersandlowerearnerswithineachcompanyis,toputitgently,wrong.It'snotthatyour
managerisincreasinglyearningalotmorethanyouareitsthatcompaniesarebecomingeverless
similartooneanother.
ConsiderAppleandMcDonalds.ThePikettyperspectiveisthatinequalityrisesbecausethetop
executivesatbothcompaniesgetmuchbiggerraisesthantherankandfile.Buttheother
possibilityisthattheaveragepayatApplerisesalotrelativetotheaveragepayatMcDonalds,
evenasthewagegapswithineachfirmstayaboutthesame.
Thatsadifferentstory,anditappearstobeamoreaccurateone,asthenewresearchconfirms
withthemostdefinitivedatasofar.
Theresearchers,ledbyJaeSongoftheSocialSecurityAdministrationhadaccesstoconfidential
SocialSecurityearningsdata,includingcompanies'taxidentificationnumbers.Theywerethus
abletolookatallearnings(notjustthosecappedatsomethreshold)andtheywereableto
examinewholefirmsratherthanjustestablishments(withthedifferencebeingthatacompany
mayhavemultiplelocations).
http://www.bloombergview.com/articles/2015-05-26/what-s-really-driving-income-inequality

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6/3/2015

What's Really DrivingIncome Inequality - Bloomberg View

Whatdidtheyfind?From1978to2012,effectivelyalloftheincreaseinwageinequality
nationallyhasbeenduetoincreasingdisparitiesfromcompanytocompany.Astheresearchers
note,thewagegapbetweenthemosthighlypaidemployeeswithinthesefirms(CEOsandhigh
levelexecutives)andtheaverageemployeehasincreasedonlybyasmallamount,refutingoft
madeclaimsthatsuchwideninggapsaccountforalargefractionofrisinginequalityinthe
population.Theresearchersalsofound,bytheway,thatthemalefemalewagegapwithin
companieshasshrunknoticeably.
Ifwewanttounderstandtrendsininequality,wehavetoaskwhysomecompaniesareoutpacing
others.
Tocontacttheauthoronthisstory:
PeterOrszagatporszag3@bloomberg.net
Tocontacttheeditoronthisstory:
MaryDuenwaldatmduenwald@bloomberg.net

http://www.bloombergview.com/articles/2015-05-26/what-s-really-driving-income-inequality

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