Monday, February 29, 2016

Measures of Inequality

Robert Samuelson has an article on some recent research on inequality by the White House's Council of Economic Advisers (CEA). Samuelson summarizes one point as follow:
[The CEA] attributes much inequality to differences between companies and not to individuals in the same firm. It’s not so much that the gap between the chief executive and the janitor at company A has widened; it’s that company A is falling behind company B, which is more profitable and pays both the CEO and the janitor better. Think General Motors (company A) and Google (B). The economy is splintering into increasingly and decreasingly profitable firms, argues CEA Chairman Jason Furman.
Income inequality is a complex phenomena which has many causes. Some may be institutional failures (e.g., rent seeking, poor schools), while others could be signs of growth and lifestyle changes (e.g., innovation, demographic changes, immigration). And that is ignoring the measurement issues around compensation (i.e., the growth of fringe benefits and government transfer payments). Samuelson argues against "stock explanations" like greed and corporate compensation packages to CEOs, and I agree.

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