Income Inequality and Baseball

INCOME INEQUALITY AND BASEBALL….Brad DeLong has a long post today summarizing a discussion among several eminent economists about income inequality. The question is not whether income inequality has skyrocketed in the past few decades ? everyone agrees that it has ? but whether or not government policies are (partially) responsible for this rise.

I think everyone agrees that government policy is not entirely to blame. As society has gotten more technological and more complex, the value of people who can analyze and direct that complexity has increased relative to those who can’t. In general, this means that smart, highly educated people are worth more today than in the past.

But I’ve never believed this is anywhere near the whole story. After all, it’s not just the top 20% who have gained relative to the bottom 80%, it’s also the top 1% who have gained relative to the 10% just below them. Do we really believe that the top 1% have an enormous educational advantage compared to the top 10%? And that this gap has increased over the past 50 years?

I don’t. So if education is only part of the story, what else has contributed? Since I’m not an economist, I’m going to answer with an analogy that I suspect no self-respecting professional would be willing to make. Here it is.

Consider professional baseball. Today’s top players routinely sign contracts that pay them $5 million a year. A-Rod signed one that paid more than $10 million. But 50 years ago, the highest paid player earned about $300,000 (in inflation-adjusted terms). Why the 30x increase?

It’s certainly not because A-Rod is relatively more valuable to the Yankees’ pennant chances today than, say, Mickey Mantle or Roger Maris were in their day. Rather, what’s happened is that there’s fantastically more money sloshing around in professional baseball than in the past thanks to skyrocketing TV, radio, and merchandise sales. More money means higher salaries.

But that’s not automatic, of course. There’s another piece to the baseball puzzle: in 1966 the baseball players union hired Marvin Miller, a former negotiator for the U.S. steel workers, to head their organization. In 1972 they went on strike, and ten years later the reserve clause was history, free agency was in full swing, and player salaries were going through the roof. This is not a coincidence.

Similarly, the broader economy has grown enormously in the past few decades, but without a Marvin Miller on their side almost none of this growing pile of money has gone to middle class workers. And this, I believe, is the root cause of skyrocketing income inequality: economic growth combined with stagnating median wages has produced a colossal amount of extra money sloshing around in the system, and it has to go somewhere. And since the rich and powerful run the system, where else is it going to go but to the rich and powerful? They aren’t going to dole it out to the less fortunate out of the goodness of their hearts, after all.

This is the reason I support unionization, especially private sector unionization. Government policy since the mid-70s, increasingly obsessed with controlling inflation, has also been increasingly anti-union (remember, Jimmy Carter was all set to break the air traffic controllers strike too; PATCO endorsed Ronald Reagan in the 1980 election because they thought they could get a better deal from him), and this has been largely responsible for keeping middle class wages down. As the baseball example suggests, bargaining power is key, and absent unions, blue collar and middle class workers have never had much leverage in the job market. It’s only been collective bargaining that’s allowed them to make significant wage gains.

So: change the rules. Create a more union friendly environment and allow workers in service industries ? by far the biggest part of the economy these days ? to unionize more easily. Sure, there’s a price to be paid for this, just as there is with any large-scale change in power: strikes, slowdowns, annoying work rules, and so forth. But the benefit would be rising median wages thanks to the bargaining power of unions, and that in turn would reduce the amount of money that’s being paid out to the hyper-rich just because it’s there and someone has to get it. The result would be higher middle class wages and a far healthier economy, but less money for the top 1% and a general decrease in income inequality.

I’m not pretending this is the whole story, or that there aren’t plenty of other societal and governmental trends that affect income inequality. But I suspect this is one of the biggest. Give workers the power they had back in the 50s and 60s and the rest will follow.

POSTSCRIPT: Fire away in comments, but please spare me any bollocks about how globalization means we can’t afford to pay workers higher wages. Maybe that’s true in the auto and textile industries, but service industries have practically no exposure to globalization and they’re the worst offenders of all. You can’t outsource janitorial work and you can’t do your grocery shopping in Bangalore, so why are janitors and Wal-Mart clerks paid so little? It’s not because of globalization. It’s because they aren’t unionized. Needless to say, Wal-Mart is keenly aware of this.