Income inequality writ larger

The orthodoxy surrounding income inequality is being undermined by research that looks at institutional issues, namely, changes in the way the corporate world measures the performance of workers, says columnist Daniel Gross.

One big change in recent decades has been a rise in performance-based pay, say professors W. Bentley MacLeod (Columbia University) and Thomas Lemieux (University of British Columbia) and Daniel Parent (McGill University):

The proportion of jobs with a performance-pay component rose to 40 per cent in the 1990s from 30 per cent in the late 1970s.

This rise of performance-based pay has accounted for 25 per cent of the growth in wage inequality among male workers from 1976 to 1993.

In 2003, 44.5 per cent of workers at Fortune 1000 companies received some form of performance-based pay, up from 34.7 per cent in 1996.

Further, the authors note that the growing legions of self-employed – people selling items on eBay, mortgage brokers and real estate brokers, freelance journalists and consultants of all types – for whom all pay is performance-based, will only continue to aid the dispersion of wealth.

And while performance pay does not completely explain the growing gap between rich and poor, says Gross, the fact that more Americans are paid less on the basis of a job title and more on their individual output inexorably means a shift toward greater inequality.

Source: Daniel Gross, Income Inequality, Writ Larger, New York Times, June 10, 2007.

For text: http://www.nytimes.com/2007/06/10/business/yourmoney/10view.html

For more on Economic Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=17

FMF Policy Bulletin/ 19 June 2007