If you want to understand why income inequality is on the rise, look no further than Arthur Sakamoto’s prostate.
Last year, the University of Texas sociologist was diagnosed with prostate cancer, a common disease of older men. His friends urged him to visit a prestigious cancer center in Houston, where, they argued, he would get the best possible care.
While appreciating their concern, he ultimately opted to be treated at an Austin hospital. His operation was, after all, routine; there was no reason he needed to go to one of the nation’s premier health care facilities.
But his friends’ impulse illustrated a phenomenon Sakamoto discusses in the February 2008 issue of the American Sociological Review. In areas where we have no personal expertise, we reflexively assume a handful of service providers are the best available. We want what they have to offer, and we’re willing to pay them top dollar.
The difference in skill level between the nation’s top-ranked prostate cancer surgeon and his or her 50th-ranked colleague may be negligible. But since the average consumer has no real way to evaluate that, “There is a certain security in knowing that someone is the best,” Sakamoto said.
As a result, “The top people in their fields are getting much higher salaries than they used to get,” he said. “That’s most obvious among lawyers and doctors. But it also applies to the person who gave John Edwards his $200 haircut.”
Sakamoto believes that star-power phenomenon is one important reason economic inequality is growing within occupations — the subject of the just-published paper he co-wrote with ChangHwan Kim of the University of Minnesota.
Usually, the term “wage inequality” brings to mind headlines about chief executive officers — unions like the AFL-CIO ruefully note that the average S&P 500 CEO averaged $15 million in total compensation in 2006. Sakamoto agrees the disparity between white-collar and blue-collar salaries is very much a reality, citing a 2002 study that reports the wage gap between high school graduates and college graduates increased 15 percent from 1979 to 1999.
But wage disparities within occupations — where most workers presumably have similar education levels — appears to be growing even more rapidly. Sakamoto reports the gap between the top earners in a given profession and those at the mid-point of the wage scale increased 15 percent from 1985 to 2000. That’s a 1 percent rise per year — a startling figure, particularly in the U.S., where the wage difference between top and bottom-rung workers remained unchanged for decades through the 1970s.
“Seniority doesn’t pay off the way it used to,” he said. “You used to get promoted within a firm. Seniority would get you a better pay grade. Today there is more mobility across firms, but you can be stuck in the same pay grade your entire life.”
Unless, that is, you somehow establish yourself as a star of your profession.
Sakamoto admits this dynamic may be less pronounced in blue-collar occupations. As of yet, there aren’t really celebrity plumbers. But with these workers, another factor leading to increased income inequality is in play: The declining strength of unions.
“Unions used to have a spillover effect,” he said. “Non-union shops would increase wages so the workers wouldn’t be tempted to unionize. But these days, unions are so weak; only 8 or 9 percent of the private sector is unionized. When a few union workers get a wage increase, it doesn’t spill over.”
So we end up with different people doing the same job — say, supermarket cashier — but getting paid at very different rates, depending on whether their store is unionized. There can also be a gap within a union store, if a two-tier contract has been negotiated that guarantees pay raises for existing workers but allows the store to hire new employees for less money.
One factor partially negates this trend, according to Sakamoto: The greater proportion of women in a given occupation, the smaller the increase in wage inequality. “In my opinion, that’s because women are less focused to be at the top of their professions,” he said. “Often, they’re content to have a career that complements their family responsibilities.”
On the other hand, if they’re in a two-career household, chances are they too are benefiting from this new reality. Sakamoto reports income inequality between households is actually rising faster than inequality between individuals. “There is a growing trend of women who make more money marrying men who make more money,” he said. “You have poor people marrying poor people and rich people marrying rich people.”
Is this a problem for society?
Sakamoto argues it is. “If the income disparity was truly a reflection in differences in productivity, a case could be made that people are simply being rewarded for being more productive,” he said. “But my sense is (rising to the top of your profession is) kind of a game. It’s not a true reflection of the value a person provides to the economy.”
Besides, he added, an economy structured so that the rewards go disproportionately to the few at the top can inspire troubling behavior. With so few lucrative spots available, upwardly mobile workers might be tempted to bad-mouth or backstab their colleagues. In a profession like teaching at the university level, where publication in prestigious journals leads to greater recognition, more opportunities and better pay, there is a temptation to put only minimal energy into actual classroom teaching.
Sakamoto knows of no clear answer to this problem (although he believes it is an argument in favor of increasing taxes on the highest earners). But he notes the traditional admonition to teenagers — that to ensure themselves a good income, they should get a college degree and enter a lucrative profession — now tells only part of the story.
“Writing before the 1980s, an economist noted that the distribution of income in the U.S. changed so little that studying it was like watching the grass grow,” he and Kim write. “In contrast, the post-1980 experience might be characterized as a time-elapsed film showing grass spurting up by leaps and bounds within a few seconds.”
So when you enter the workplace, bring your machete.