In this excellent interview with Daron Acemoglu, the MIT economist raises a couple of points about inequality that are worth emphasizing. As we noted in a previous post, declining upper bracket tax rates have much less to do with increasing inequality than the changing structure of the US, and at least Anglophone, economies. Financialization, especially changing modes of CEO compensation linked to financial assets, have had a dramatic effect. The average CEO took home 42 times more than the average worker in 1980, while the average CEO now takes home 400 times more. As Acemoglu notes, this is not just about the changing compensation culture, but also the massive growth of financial profits. On his account, 40% of corporate profits are in the financial sector.
But Acemoglu makes a further contribution to our understanding of the way inequality is related to structural changes. He points out that one effect of globalization was to lead to the loss of a very specific sector of jobs in the United States – specific, high-skilled, manufacturing jobs. Not all high-skill jobs were loss, but a segment that accounted for a significant portion of middle-range incomes: “one thing that becomes quite clear is that the sorts of changes that have happened in offshoring and trade over the last 10 years could be very consequential because they are replacing precisely the products and functions that a very narrow group of workers were performing in the U.S. economy.” On Acemoglu’s account, many other jobs have done better, leading to a mild improvement in the employment and income potential of the bottom 10 to 20%:
“Personal services, retail, low-skill health care—those are expanding very rapidly—so workers at, say, the 20th percentile or the 10th percentile are actually doing better than, say, the 50th percentile over time. They’re subject to more positive changes in their earnings than are the middle percentiles. So looking at the world just through two types of workers, high-skill versus low-skill, would mask this. Similarly, getting our picture of what’s going on from looking only at the 1980s would mask this because trends then were very different from the 1990s or the 2000s.”
The difference, on his account, is not broadly high v. low-skill but rather changes in the middle, as very high-paying high-skill jobs have grown, along with very low-paying low-skill jobs, while the middle range of tasks have declined. This is quite similar to an argument made in Doug Henwood’s After the New Economy, about the service sector based growth of the ‘new economy.’ But it is important as a further piece of the puzzle regarding the growth of inequality over the past decades, and how that growth is related to structural transformations of the economy, not just changes in tax and social policy.