Why doesn’t economic inequality bother us within a field?

Income inequality has been in the news lately, notably with Barack Obama’s pitch to raise the minimum wage. The statistics are kind of ugly. Some people get paid a fortune while most of us do not.

People can differ when comparing wages across fields. In October I was at Korean BBQ restaurant in Manhattan sitting across from Venus Williams. One of my companions said later “I don’t see why she gets paid so much to hit a tennis ball. My friend is a cancer researcher doing much more worthwhile work and he doesn’t get paid a lot.” My response was that people dropped dead every day from cancer and therefore his friend wasn’t doing an obviously great job. Venus Williams, by contrast, inspired tens of millions of people all over the planet as to what were the limits of human capabilities.

What about within a field, though? I have taken over all of the shopping and cooking in our apartment since our baby was born (1.5 weeks ago). In addition to making the inconvenience of pregnancy and the pain of childbirth seem insignificant, the results of my kitchen experiments I am sure are convincing the rest of the household that the chef of a Michelin-starred restaurant should be earning at least 100X what I might earn in the same field.

Consider also writing. In theory this is something that nearly 100 percent of Americans learn how to do. Yet some people cannot put together a single grammatical sentence while others can write a complete bestselling novel. It doesn’t seem unreasonable that the minimum wage is too high for a writer whose work is disorganized and needs thousands of dollars worth of copy-editing and at the same time that Stephen King might earn $20 million per year (source: Forbes).

In fact, considered in this light we would expect tremendous income inequality in any field except those where productivity is fixed (assembly line) or irrelevant (government).

So why are we continually surprised and, in some cases offended, that people earn different amounts? Is it because of people who get ahead seemingly unjustly, e.g., Bob Nardelli collecting hundreds of millions from Home Depot shareholders while earning a place in the “Worst American CEOs of All Time”? Aside from my friend, who is more passionate about cancer researcher compensation, most Americans seem to think that it is fair for sports stars to earn a lot. Is that because, absent doping, it is obvious that the sports star reached the top through fair competition?

[Separately, it might be worth looking at what politicians are proposing. As a remedy for income inequality, Obama suggests in his December 4, 2013 speech "strong application of anti-discrimination laws" and cites the figures that "women still make 77 cents on the dollar compared to men." Given that government and government contracting is now nearly 50 percent of the economy, how can this be the result of sex discrimination unless the government itself is discriminating? Does it make sense for the CEO of the largest employer in the United States to say "Employers nationwide have to stop discriminating"? Why hasn't the government snapped up all of these highly qualified underpaid women (this would roughly double their compensation (see this study))?

Obama's next solution is "immigration reform" but immigration is a huge contributor to income inequality since a person who is new to the U.S. and may not speak English is going to earn less than a native-born citizen.

Obama then decries "disparities in education" but generally politicians like Obama fight against school vouchers that would allow poorer Americans to send their children to the private schools that are favored by wealthier Americans. Obama says that "obesity" among the poor contributes to income inequality but the New York Times reports that the USDA encourages industrial food companies to cram more cheese into everything. Why wouldn't Obama use his executive authority to shut this down instead of decrying obesity? Obama attacks "absent fathers" without mentioning that a lot of state governments encourage this by making divorce and child support lawsuits highly lucrative for mothers (see "Child Support Guidelines: The Good, the Bad, and the Ugly" by Brinig and Allen for how some states encourage divorce). Obama complains about "isolation from community groups" without mentioning that higher tax rates and a bigger government will necessarily crowd out community groups. When the government is providing housing, food, health care, etc. to the poor there is less of a role for a community group to play. (This may be why Bill Gates and Warren Buffett, for example, concentrate their charitable efforts outside the U.S.)

Obama argues that a higher minimum wage will not eliminate jobs or raise costs to consumers. It will be truly a free lunch. But maybe there is a third possible consequence: it will eliminate poorly skilled Americans from the work force in favor of additional immigrants. As I noted an August 2010 posting, the cost of a poorly skilled person in a factory or office is now much higher than it was. Add that to a high minimum wage and an employer will simply fire poorly skilled Americans and learn more heavily on the H-1B program. So there can be the same number of jobs and roughly the same costs to consumers, as President Obama says, but more Americans on Welfare and more immigrants working.

Obama says "I challenged CEOs from some of America’s best companies to give these [long-term unemployed] Americans a fair shot.” Yet, as noted above, Obama himself is the CEO of America’s largest employer. Why doesn’t he hire these folks? The government spends huge quantities of taxpayer dollars recruiting young people fresh out of college. Why not shut that down and hire folks who just graduated from 99 weeks of Xbox? The government provides excellent jobs in air traffic control (more than $200,000 per year in total comp) and trains people for those jobs. Currently the government discriminates against anyone over age 30 by flatly refusing to hire them (FAA policy). Obama could adjust this regulation to allow 35-year-olds who’ve been unemployed for at least two years to apply.]

7 Comments

  1. Jonathan Graehl

    December 20, 2013 @ 2:54 pm

    1

    Nice rant. But what’s the theory about higher min. wage => more H-1B workers? I thought H-1B quotas were reached and the workers were higher skill/pay than min. wage?

  2. philg

    December 20, 2013 @ 7:05 pm

    2

    Maybe not H-1B workers for all of the minimum wage jobs, but certainly immigrants

    http://online.wsj.com/news/articles/SB10001424127887324492604579087044033601178

    is an interview with a guy who runs an employment agency. It says “This year he will place nearly half a million workers in jobs.” and

    Mr. Funk is happy to lay out many of the report’s themes. Perhaps most arresting is his assertion that “anyone who really wants a job in this country can have one.” With 20 million Americans unemployed or underemployed, how can that be?

    To land and keep a job isn’t hard, he says, but you have to meet three conditions: “First you need integrity; second, a strong work ethic; and, third, you have to be able to pass a drug test.” If an applicant can meet those minimal qualifications, he says, “I guarantee I can find employers tomorrow who will hire you.”

    “I guess I’m a little prejudiced to the immigrants and especially Hispanics,” he says. “They have an amazing work ethic. They don’t want handouts and are grateful to have a job. Our company has a great success rate with these workers.” This focus on work effort is seldom, if ever, discussed by policy makers or labor economists when they ponder what to do about unemployment. To most liberals, the very topic is taboo and is disparaged as blaming the economy’s victims.

    [i.e., the guy is basically saying the solution for his customers is to replace native-born Americans with poor work ethics with immigrants who have good work ethics.]

  3. Jack Crossfire

    December 20, 2013 @ 7:10 pm

    3

    It’s not the inequality as much as the distribution going to the least qualified. It’s 1 of those times when the workforce is a bunch of idiots, while the unemployed constitute an infinite supply of extremely talented people. There are enough rants about broken, clunky, slow software, technology that doesn’t work, politicians that don’t think, products that people want but companies refuse to make, price manipulation, bureaucracies that don’t work, to prove that.

    We’d be better off if everyone with a job was laid off & started over & that’s exactly what the government is tasked with preventing. That’s exactly what would allocate wealth based on supply & demand. Instead, it’s cheaper to borrow money & buy back shares than to produce anything. There’s no interest on credit because it would require the people with jobs to improve.

  4. George

    December 22, 2013 @ 10:44 am

    4

    The reason immigrants do better in the States is because we are seeing the best of the crop.

    For example, when a US company sends its workers to a different country for training, sales, or what have you, we send our best. When immigrant make it to the States, you are seeing their best because they are motivated, driving and determined — otherwise they wouldn’t be taking the risk in the first place.

    In summary, we see immigrants doing well, be it high or low paying jobs, because we are dealing with the best. Other countries look at us and see the same.

  5. philg

    December 22, 2013 @ 2:00 pm

    5

    George: It is possible that your explanation is correct (i.e., that the immigrants American employers find it profitable to hire are better workers than the average back in their home country). But I don’t think it makes a difference to Bob Funk’s point of view as expressed in the Wall Street Journal. Immigrants could be better workers because they had been abducted by aliens and been given a “work ethic brain implant.” Funk doesn’t express a theory as to why immigrants have a superior work ethic. He only makes an observation that in his experience they do have a superior work ethic.

  6. J. Peterson

    December 22, 2013 @ 2:30 pm

    6

    The only thing school vouchers enable is the purchase of more luxury cars by private school administrators. Think about it. You’re the headmaster at St. Greedo’s. You carefully tune your tuition and “financial aid” to keep every seat at your academy full, with a few on the waiting list just in case. You know every family at your school is currently able to afford to send their kids there, even if just barely. Then school vouchers come out, at say $5K a pop. Time to immediately raise your tuition by $5K! If your families could afford your tuition before, you know they have an extra $5K to spend now, so you take it. Buy yourself a fancy car this year! Your wife gets a new car next year, and Jr. will be of driving age the year after that…

    If there’s any money left over after the car lease payments, the teachers may get some donuts in the break room.

  7. philg

    December 22, 2013 @ 8:52 pm

    7

    J: The idea that private schools could capture the voucher amounts and then charge parents whatever they used to charge makes sense (since colleges are doing it now!). But I think a lot of these vouchers have gone to families who don’t have much money so it wouldn’t be practical. Check out the following references:

    http://online.wsj.com/news/articles/SB10000872396390444184704577585582150808386 talks about a program in NYC where the vouchers were $1400 and the Catholic-run schools to which children were sent charged $1728 per year.

    http://ies.ed.gov/ncee/pubs/20104018/pdf/20104018.pdf is about a D.C. program with $7500 vouchers and the mean amount of tuition charged was actually less than the voucher amount (about $7252). http://www.cato.org/blog/census-bureau-confirms-dc-spends-29409-pupil indicates that D.C. spends almost $30,000 per student when a child attends a government-run school.

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