Earnings inequality and academia

I’ve observed the economics job market for the last twenty years or so, and I’ve noticed a marked increase in earnings inequality in the last ten or so years.  The mega-stars get paid lots more, yet many other wages stagnate.  I’ve heard of economist salaries of $400,000 and above, plus perks and benefits, but in 1990 almost any salary in six figures was a big deal.

This change is not because the union was broken, not because of the Bush tax cuts, and not because of growing globalization.

What then?

Markets seem more interested in measuring, bidding for, and rewarding quality.  The academic world is also far more competitive than before.  Many more institutions have the resources, and the will, to make a run at the big name players and bid up their salaries.  Just look at, say, NYU or Washington University.  The Internet means those same professors don’t feel a compelling need to have their collaborators right next door.

I conclude that the academic world, ten or fifteen years ago, was much less competitive than today.  It was also less of a meritocracy (I mean that in the Clarkian W=MP sense, not the moral sense), and we were more likely to observe a "pooling equilibrium" when it came to salaries.

I also conclude that many apparently competitive sectors aren’t nearly as competitive as they look at first glance.

Now I don’t have any evidence that this same trend explains the growth of wage inequality in the broader economy.  But it would be wrong to dismiss that possibility out of hand.


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