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Archive for the ‘income inequality’ Category

Are you a Biller or a Player?

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Excellent article by Arnold Kling and Nick Schulz. “Winner take most” markets, the upper-upper and upper-lower income gaps, and more.

Inequality and the Sergey Brin effect

…A final trend that promotes income inequality is that more Americans may be engaging in a kind of gambling behavior in their choice of occupation. They are increasingly choosing to play in winners-take-most tournaments, such as the contest to build the leading Internet search engine. For every Sergey Brin, there were thousands of software engineers who played in the search-engine contest and lost.

As best-selling writer and investor Nassim Nicholas Taleb points out in The Black Swan, safe occupations are those where the worker is paid a fixed amount per unit of time. An accountant or a nurse is not going to become extremely rich or extremely poor; they could be called β€œbillers,” because they bill for their time. On the other hand, a professional singer or a software entrepreneur is playing in a winners-take-most tournament. The difference in talent between an international pop star and an unknown lounge singer may actually be quite small. However, the nature of these fields is that the difference in rewards can be enormous. People who choose these sorts of occupations could be called β€œplayers.”

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Written by infoproc

October 2, 2008 at 8:07 pm

Why no bailout?

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Representatives in Congress received thousands of phone calls and emails from constituents against the bailout, which some wags have characterized as “no banker left behind” πŸ™‚

We can trace this popular reaction against CEOs and Wall St. to growing income and wealth inequality. Ordinary people no longer feel they have a stake in the system. Their reaction may be irrational (even the poorest American has a big stake in the continued functioning of the economy), but it was certainly predictable.

Next spring, unlike last year, less than half of the Harvard graduating class will take jobs in finance. I guess that signals a top in the market 8-/

Related posts:

financier pay

all about the benjamins

a reallocation of human capital

a new class war

non-residential net worth

working class millionaires

Written by infoproc

September 30, 2008 at 2:48 pm

WSJ compensation survey

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The WSJ has posted some interesting compensation data which can be sorted by college and degree type. The data covers people less than 5 years out of school and more than 10 years out (“mid-career”), in all cases excluding those that earned advanced degrees — so that the outcomes are most sensitive to the undergraduate background of the respondents. Note you can click the column heading to sort by that variable (starting salary, 75 percentile mid-career salary, etc.).

There’s also an accompanying article. The author notes that schools (Ivies) at which a large fraction of students head into finance tend to have the highest starting and mid-career averages. Engineers have high starting salaries but not as much appreciation.

A social scientist can now regress the salaries on avg SAT and school / major to calculate the economic “value add” for a particular major or institution. (See UT Austin data here.) A significant confound is that people who *do* get advanced degrees would not appear in this data. (Almost half of all Caltech undergrads get PhDs and probably well over half get other advanced degrees.)

Some random results:

Caltech grads had the highest median starting salaries at $75k; by midcareer Dartmouth is number one with median compensation of $134k (MIT $126k, Caltech $123k).

Salaries by degree | starting | 10th-90th percentile midcareer range

Physics | $50k | $56k — $178k
EE | $60k | $69k — $168k
English | $38k | $33k — $136k
Economics | $50k | $50k — $210k
Philosophy | $40k | $35k — $168

β€’ Survey respondents included two sets of U.S. bachelor’s degree graduates: Full-time workers with 5.5 years of experience or less and full-time employees with 10 or more years of experience.

β€’ The survey excluded respondents who reported having advanced degrees, including M.B.A.s, M.D.s and J.D.s. Self-employed, project-based, and contract employees were also not included.

β€’ Salary included annual cash compensation, including base salary or hourly wages, combined with commissions, bonuses, profit sharing and other forms of cash earnings.

Written by infoproc

July 31, 2008 at 3:18 pm

WSJ on income stagnation for college graduates

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All examples given where incomes rose (often dramatically) are in the financial sector, and typically require relatively high IQ. The lawyer profiled below specializes in cat bonds!

WSJ: For decades, the typical college graduate’s wage rose well above inflation. But no longer. In the economic expansion that began in 2001 and now appears to be ending, the inflation-adjusted wages of the majority of U.S. workers didn’t grow, even among those who went to college. The government’s statistical snapshots show the typical weekly salary of a worker with a bachelor’s degree, adjusted for inflation, didn’t rise last year from 2006 and was 1.7% below the 2001 level.

…Economists chiefly cite globalization and technology, which have prompted employers to put the highest value on abstract skills possessed by a relatively small group, for this state of affairs. Harvard University economists Lawrence Katz and Claudia Goldin argue that in the 1990s, it became easier for firms to do overseas, or with computers at home, the work once done by “lower-end college graduates in middle management and certain professional positions.” This depressed these workers’ wages, but made college graduates whose work was more abstract and creative more productive, driving their salaries up.

Indeed, salaries have seen extraordinary growth among a small number of highly paid individuals in the financial sector — such as fund management, investment banking and corporate law — which, until the credit crisis hit a year ago, had benefited both from the buoyant financial environment and the globalization of finance, in which the U.S. remains a leader.

Richard Spitzer is one of those beneficiaries. He received his undergraduate degree in East Asian studies in 1995 from the College of William and Mary and graduated from Georgetown University’s law school in 2001. The New York firm for which he works, now called Dewey & LeBoeuf, has a specialty in complex legal work for insurance companies. There, Mr. Spitzer has developed an expertise in “catastrophe bonds.” An insurance company sells such bonds to investors and pays them interest, unless an earthquake, a hurricane or unexpected surge in deaths occurs.

Experts in these bonds are “probably a rarefied species — there’s only a few law firms that do them,” says Mr. Spitzer, 35 years old. He typically spends two to four months on a single deal, ensuring that details like timing of payments or definition of the triggering event are precise enough to avoid disputes or default.

Mr. Spitzer’s salary has doubled to $265,000 since joining in 2001, in line with salaries similar firms pay.

Written by infoproc

July 17, 2008 at 3:43 pm

A bankers’ utopia

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Not exactly the opinion piece I expected to find in the Wall Street Journal!

WSJ: Our Great Economic U-Turn
THOMAS FRANK

…The top 20% of households earned more, after taxes, than the rest of the country combined in 2005, while the topmost 1% of the population took home more than the bottom 40%. …Real hourly wages for most workers, on the other hand, have risen only 1% since 1979, even as those workers’ productivity has increased by 60%. What’s more, American workers now clock more hours per year than their counterparts in virtually every other advanced economy, even Japan. And unless you haven’t read a newspaper for 15 years, you already know what’s happened to workers’ health insurance and pension plans.

I confess that I am fascinated by the mechanics of this huge social reconfiguration – in the same sense that I am fascinated by the industrial procedures of a slaughterhouse… How the big change was brought off is the subject of Steven Greenhouse’s important new book, “The Big Squeeze,” which is also my source for many of the statistics in the preceding paragraphs. …

…It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections – or any of the succeeding contests, for that matter – as a referendum on plutocracy.

So let us have one now. Instead of pleasant talk about “change” and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers’ utopia – where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%.

Written by infoproc

May 14, 2008 at 4:06 am

A bankers’ utopia

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Not exactly the opinion piece I expected to find in the Wall Street Journal!

WSJ: Our Great Economic U-Turn
THOMAS FRANK

…The top 20% of households earned more, after taxes, than the rest of the country combined in 2005, while the topmost 1% of the population took home more than the bottom 40%. …Real hourly wages for most workers, on the other hand, have risen only 1% since 1979, even as those workers’ productivity has increased by 60%. What’s more, American workers now clock more hours per year than their counterparts in virtually every other advanced economy, even Japan. And unless you haven’t read a newspaper for 15 years, you already know what’s happened to workers’ health insurance and pension plans.

I confess that I am fascinated by the mechanics of this huge social reconfiguration – in the same sense that I am fascinated by the industrial procedures of a slaughterhouse… How the big change was brought off is the subject of Steven Greenhouse’s important new book, “The Big Squeeze,” which is also my source for many of the statistics in the preceding paragraphs. …

…It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections – or any of the succeeding contests, for that matter – as a referendum on plutocracy.

So let us have one now. Instead of pleasant talk about “change” and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers’ utopia – where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%.

Written by infoproc

May 14, 2008 at 4:06 am

A bankers’ utopia

leave a comment »

Not exactly the opinion piece I expected to find in the Wall Street Journal!

WSJ: Our Great Economic U-Turn
THOMAS FRANK

…The top 20% of households earned more, after taxes, than the rest of the country combined in 2005, while the topmost 1% of the population took home more than the bottom 40%. …Real hourly wages for most workers, on the other hand, have risen only 1% since 1979, even as those workers’ productivity has increased by 60%. What’s more, American workers now clock more hours per year than their counterparts in virtually every other advanced economy, even Japan. And unless you haven’t read a newspaper for 15 years, you already know what’s happened to workers’ health insurance and pension plans.

I confess that I am fascinated by the mechanics of this huge social reconfiguration – in the same sense that I am fascinated by the industrial procedures of a slaughterhouse… How the big change was brought off is the subject of Steven Greenhouse’s important new book, “The Big Squeeze,” which is also my source for many of the statistics in the preceding paragraphs. …

…It is, in other words, a political disaster, with tax cuts, trade agreements, deregulatory measures, and enforcement decisions all finely crafted to benefit one part of society and leave the rest behind. Few of the voters who gave Ronald Reagan his landslide victories, it is fair to say, intended for this to be the outcome. They wanted their country to stand tall again, certainly; they wanted the scary regulators off their backs, maybe; but I can recall no conservative who trumpeted those long-ago elections – or any of the succeeding contests, for that matter – as a referendum on plutocracy.

So let us have one now. Instead of pleasant talk about “change” and feats of beer drinking at the corner tavern, let us hear our candidates address this greatest issue of them all: What kind of country are we to be? A land of equality? Or a bankers’ utopia – where the law of the land has achieved mystical oneness with the higher law of classical economics, and devil take the bottom 80%.

Written by infoproc

May 14, 2008 at 4:06 am