The Corner

Professors, Baseball, and Inequality

One of the things that bothers me about our phony “inequality” debate is the habit of comparing average incomes to the incomes of S&P 500 CEOs, as Paul Krugman does. Why those guys? The average U.S. CEO makes less than $200,000 a year. S&P 500 CEOs are an extraordinarily small and economically unusual group of workers whose compensation is generally performance-based and who do indeed earn many, many multiples of what the typical worker does — and many, many multiples of what the typical CEO earns, too. As Mark Perry at AEI points out, Professor Krugman himself earns more than does the typical American CEO — from just one of his gigs, a part-time one at that. The average college professor earns about $98,000 a year; the highest-paid college professor earns about 45 times that. The average U.S. CEO makes about 4.5 the average U.S. salary — which is to say, the split between top professors and average professors is about ten times the split between average CEOs and average workers. S&P 500 CEOs make, on average, about 60 times what the typical CEO makes — larger than the split between elite and non-elite professors, but not radically so.

This got me to thinking about intra-elite inequality. I very strongly suspect that it’s the case that the spread between what the top Hollywood actor earns today and what the average Hollywood actor earns is much greater than it was in, say, 1960 or 1980. Baseball, being the most data-obsessed of all the sports, provides an illuminating example: All Major League players are at least within the top 5 percent of income earners, the minimum wage in the industry being approximately a half-million dollars a year. But many do much better than that. In fact, as Barry Krissoff documents in the Baseball Research Journal — because of course there’s a Baseball Research Journal — “income inequality within baseball closely mirrors income inequality across U.S. households, albeit at much higher income levels. Remarkably, the share of income that is attributed to the top 5 percent of ballplayers compared to all major league players is even more pronounced than the top 5 percent of income among all U.S. households.”

Professional sports, like banking or corporate management, is a bigger business than it was 50 years ago, and returns to the top performers in larger markets tend to be commensurately large. If, for example, you are one of the 500 most successful real-estate agents in Oklahoma, you probably make a pretty nice living. If you are one the 500 most successful real-estate agents in the United States, you’re rich. If you are one of the 500 most successful real-estate agents in the world, you’re a mogul. I am fairly open to Nassim Taleb’s “fooled by randomness” argument, that much of what passes for managerial skill or investment talent is basically luck; but that doesn’t change the fact that being the luckiest guy in a trillion-dollar market is different from being the luckiest guy in a billion-dollar market. 

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