Arnold Kling

CEO's and Ballplayers

Arnold Kling, Great Questions of Economics
Previous Entry Next Entry

Alan B. Krueger's column in the New York Times business section discusses research on income inequality. Among many interesting findings, he mentions

After adjusting for inflation, salaries of chief executives grew about 6 percent a year in the 1980's and 90's, while those of basketball and baseball players grew more than 10 percent a year. Wage growth has been so strong at the high end that the top 1 percent of taxpayers have taken home 94 percent of the growth in total income since 1973.

I would make a couple of remarks about this. One is that this is part of a trend that I noted in 75 Percent Mental that knowledge is being rewarded more than ownership of physical capital.

The other remark is that we have a reasonable explanation for the increase in the wages of baseball and basketball players. That is, the "reserve clause" was struck down. As a result, wages which had been artificially held far below their competitive level now are rising toward a competitive equilibrium.

Discussion Question. Why has the pay of CEO's risen so rapidly?

Return to top