But here’s the thing: Effective solutions require an accurate diagnosis of the underlying problem. For example: It matters whether a bridge collapsed because a recent earthquake was too strong or because bridge inspectors were bribed to approve shoddy construction. Similarly, it matters whether higher inequality is mostly the result of powerful interests immorally rigging the game or of impersonal macroeconomic factors, specifically technology and globalization.
Let’s consider just one small slice of the economy, and one that is often decried by liberals as being highly immoral and unfair: executive compensation. Why have CEO pay packages, by some measures, greatly outpaced worker wages in recent decades? Sanders would point the finger at CEOs manipulating pliant corporate boards. The 0.1 percent and 0.01 percent all taking care of each other, at the expense of the rest of us. But a new study suggests the story isn’t so simple. The National Bureau of Economic Research working paper “Firming Up Inequality” finds that earnings inequality hasn’t risen because the best paid workers at companies now make a lot more than they used to compared to everyone else at their respective firms. Instead, the authors find “strong evidence that within-firm pay inequality has remained mostly flat over the past three decades.” What has changed is the pay gap between firms. Workers at the higher-paying firms now make a whole lot more than they used to versus those at lower-paying firms. Why would this be? Maybe some companies are paying a premium for highly specialized, highly educated employees in response to a more globalized, technology-centric economy. It might not just be because powerful players are rigging the game!