Within the top 10 percent, SBTC [Skill-Biased Technical Change] has certainly still been an issue, and there is a role of SBTC in contributing to pay premia of entertainment and sports superstars. In a variety of settings, technology has allowed superstars to distribute their talent to a wider variety of consumers. This has driven their incomes up exponentially. Their earnings are an outcome of market forces, and the only policy measure available to achieve greater after-tax equality is an increase in tax rates at the top balanced by a decrease at the bottom.Greater after-tax equality? Why? What is wrong with the earnings that these people receive? An increase in tax rates at the top balanced by a decrease at the bottom looks like a "solution" without a problem. If the earning outcomes are the result of market forces, there will be good reasons why the market rewards people in this way. Someone must believe these people are worth what they are paid, or they wouldn't get paid it. So what's the problem?
However, for top corporate executives, there is strong evidence that incomes have been driven by non-market forces. This is where policy can have the most positive impact on inequality; increased disclosure and improved corporate governance laws can not only raise firm value but help distribute economic gains more evenly across society.Insofar as top corporate executive income is driven by non-market forces, such as CEO-Board complicity in pay setting and managerial power being behind some of the gains in CEO pay, isn't the problem one for the owners of the firms concerned, not for the government. There appears to be no government policy issue here. If the owners of firms are happy with what their executive are paid, where's the problem, and insofar as they are unhappy, the solution is in their own hands. No government policy changes seem needed.
Update: Arnold Kling comments on Trends in Relative Earnings.
Update 2: Russ Roberts asks a couple of good questions in this posting, Egalitarian?
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