Tuesday, June 17, 2008

Size and Inequality

Tim Lee has an interesting post discussing power laws and the rise of inequality. I have often had the same intuition about monetary inequality, which has risen on a pre-tax basis over the past 30 years. There might be nefarious reasons behind this rise, of course, but when the entire country wants to patronize the best person(s) in a given field -- and where the work is scalable -- the growth of population probably means that people in that field will earn relatively more money than people in other professions.

For example, the best basketball player or the most popular movie star in a nation with 300 million people will make more money than the best basketball player or most popular movie star in a nation with 100 million people. That isn't true of janitors or mechanics or any number of non-scalable occupations; population growth doesn't enable them to sell their work to more and more people. And then add to this the fact that we're a richer country than in the 1950s, making it more likely that the wages of the best basketball player or hedge fund manager will be bid up. I wonder how much these factors account for the rise in inequality during the last few decades.


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