Edward Conard

Top Ten New York Times Bestselling Author

  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, May 26, 2015

AI Summary. Research finds the rise in U.S. wage inequality has been driven mainly by widening pay gaps between companies rather than within them, with the gap between top executives and average employees inside firms increasing only slightly. The male-female wage gap within companies has narrowed.

Peter Orszag Bloomberg
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The increase in US wage inequality from 1978 to 2012 was driven by disparities btw companies, not within them. The wage gap btw top executives & average employees within firms has only increased slightly. @PeterOrszag

Is wage inequality driven by gaps between firms rather than within?

Core argument: Rising U.S. wage inequality from 1978 to 2012 was driven primarily by widening pay differences between firms rather than within them, with the gap between top executives and average employees inside firms increasing only slightly.

From 1978 to 2012, the increase in wage inequality in the U.S. has been primarily driven by disparities between companies rather than within them. The wage gap between top executives and average employees within firms has only increased slightly, challenging the notion that internal pay differences are the main cause of rising inequality. Instead, the divergence in average pay between companies like Apple and McDonald's illustrates this trend, as some firms significantly outpace others in compensation. This shift underscores the need to examine why certain companies excel financially while others lag, as this inter-company disparity is a key factor in understanding income inequality. Additionally, the male-female wage gap within companies has decreased, indicating progress in gender pay equity.

Takeaways by Macro Roundup® AI

  1. Rising U.S. wage inequality from 1978 to 2012 was driven primarily by widening pay differences between firms rather than within them, with the gap between top executives and average employees inside firms increasing only slightly.
  2. The divergence in average pay between companies such as Apple and McDonald's illustrates the between-firm pay gap, directing attention to why some firms excel financially while others lag.
  3. The male-female wage gap within companies decreased from 1978 to 2012.

"...The researchers, led by Jae Song of the Social Security Administration had access to confidential Social Security earnings data, including companies' tax identification numbers. They were thus able to look at all earnings (not just those capped at some threshold) and they were able to examine whole firms rather than just establishments (with the difference being that a company may have multiple locations). What did they find?From 1978 to 2012, effectively all of the increase in wage inequality nationally has been due to increasing disparities from company to company. As the researchers note, “the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.” The researchers also found, by the way, that the male-female wage gap within companies has shrunk noticeably...." Orszag, Peter, "What's Really Driving Income Inequality,"Bloomberg, May 26, 2015. Available at:http://www.bloombergview.com/articles/2015-05-26/what-s-really-driving-income-inequalityWhat's Really Driving Income Inequality May 26, 2015 11:27 AM EDT By Peter R. Orszag The most important recent research on income inequality is not, as news reports might suggest, Thomas Piketty's famous book. It is Research out this week from a team of economists explaining the role that companies play in wage differences. The popular conception that increasing inequality is explained mostly by widening gaps between top earners and lower earners within each company is, to put it gently, wrong. It's not that your manager is increasingly earning a lot more than you are; it’s that companies are becoming ever less similar to one another. Consider Apple and McDonald’s. The Piketty perspective is that inequality rises because the top executives at both companies get much bigger raises than the rank-and-file. But the other possibility is that the average pay at Apple rises a lot relative to the average pay at McDonald’s, even as the wage gaps within each firm stay about the same. That’s a different story, and it appears to be a more accurate one, as the Research confirms -- with the most definitive data so far. The researchers, led by Jae Song of the Social Security Administration had access to confidential Social Security earnings data, including companies' tax identification numbers. They were thus able to look at all earnings (not just those capped at some threshold) and they were able to examine whole firms rather than just establishments (with the difference being that a company may have multiple locations). What did they find? From 1978 to 2012, effectively all of the increase in wage inequality nationally has been due to increasing disparities from company to company. As the researchers note, “the wage gap between the most highly paid employees within these firms (CEOs and high level executives) and the average employee has increased only by a small amount, refuting oft-made claims that such widening gaps account for a large fraction of rising inequality in the population.” The researchers also found, by the way, that the male-female wage gap within companies has shrunk noticeably. If we want to understand trends in inequality, we have to ask why some companies are outpacing others.

Monday, June 1, 2015

AI Summary. Across seven large developed economies, the only long-term increase in capital's share of income is in housing, according to an analysis that subtracts depreciation to measure net capital income. Industries using short-lived assets such as software show high gross capital shares but low net shares, because rapid obsolescence absorbs returns.

Matthew Rognile Brookings Papers on Economic Activity
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Rognile’s analysis of 7 large developed economies shows only housing has a long-term increase in capital’s share of income. Net capital income is low due to rapid obsolescence & returns aligned with labor, not capitalists @MatthewRognlie BrookingsPapers.

Is housing the only source of capital's rising income share?

Core argument: Rognlie finds that across seven large developed economies — the US, Japan, Germany, France, the UK, Italy, and Canada — housing is the only sector showing a long-term rise in capital's share of income.

Rognlie's analysis of seven large developed economies (US, Japan, Germany, France, UK, Italy, and Canada) reveals that the only long-term increase in capital's share of income is in housing. By subtracting depreciation, he calculates net capital income and highlights that industries with short-lived assets like software show a high gross capital share due to capital's direct role in production. However, the net capital share remains low as returns are more aligned with labor, such as software engineers, rather than capitalists. This suggests that while capital's role in production is significant, its net contribution is diminished by rapid obsolescence, emphasizing the importance of understanding depreciation's impact on capital income distribution.

Takeaways by Macro Roundup® AI

  1. Rognlie finds that across seven large developed economies — the US, Japan, Germany, France, the UK, Italy, and Canada — housing is the only sector showing a long-term rise in capital's share of income.
  2. Subtracting depreciation to compute net capital income, Rognlie shows that industries relying on short-lived assets such as software post a high gross capital share while their net capital share stays low.
  3. Rognlie attributes the low net capital share in software-intensive industries to returns accruing to labor such as software engineers rather than to capitalists.

Rognlie subtracts depreciation in seven large developed economies (US, Japan, Germany, France, the UK, Italy, and Canada) to get net capital income, and finds that the only long-term rise in capital’s share of income is in housing. Rognile, Matthew, "Deciphering the fall and rise in the net capital share,"Brookings Papers on Economic Activity, March 19, 2015. Available at:http://www.brookings.edu/about/projects/bpea/papers/2015/land-prices-evolution-capitals-share"...For instance, in an industry where most of the output is produced by short-lived software, the gross capital share will be high, evincing the centrality of capital’s direct role in production. At the same time, the net capital share may be low, indicating that the returns from production ultimately go more to software engineers than capitalists—whose return from production is offset by a loss from capital that rapidly becomes obsolete...."