Lecture 26 - Econ 201 Lecture 26 Winner-Take-All Markets...

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Econ 201 Lecture 26 Winner-Take-All Markets People's incomes differ because of differences in their "human capital," an amalgam of education, training, experience, intelligence, energy, and other personal attributes that affect productivity. These factors are clearly important, but they tell only a small part of the story. Thus, even though the distribution of human capital has remained virtually unchanged during the last two decades, the distribution of income has grown dramatically more concentrated. The top one percent of U.S. earners have captured more than 40 percent of all economic growth since 1973, a period during which the median wage actually fell 15 percent and the bottom fifth of earners lost even more. CEOs of top corporations now earn more than 500 times as much as the average worker, up from only thirty-five times in the mid 1970s. What happened? Contrary to what many analysts have said, the top earners of today are not better insulated than their predecessors from the discipline of competition. Nor are they appreciably smarter or better trained. Rather, the most important change has been the spread of what we call winner-take-all markets. Long familiar in sports and entertainment, these are markets in which small differences in talent or performance often translate into enormous differences in economic reward. Insight into the nature of winner-take-all markets is afforded by a look at the forces that have transformed the classical music industry. At the turn of the century, there were more than 1300 opera houses in the state of Iowa alone, and thousands of sopranos earned adequate, if modest, livings by performing before live audiences around the world. By contrast, most music is consumed in recorded form today, and this has enabled a handful of leading sopranos to corner virtually the entire market. (How many of your friends can name more than four?) Because millions of us worldwide are willing to pay a few cents extra to hear the best performers, these singers command seven-figure contracts even as their understudies, many of them only slightly less talented, struggle to get by. As in music, so increasingly in law, investment banking, consulting, journalism, medicine, corporate management, publishing, design, fashion, and a host of other professions. Although the details vary in different spheres, the common thread is that technical forces have enabled top performers to serve broader or more valuable segments of their respective markets. Inequality is growing both because of the increased
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Lecture 26 - Econ 201 Lecture 26 Winner-Take-All Markets...

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