Explaining top pay

Date posted: September 18, 2013

One of the big issues in the country is the increased salaries that have been earned by those in the top pay strata, the so-called one percent. What’s the latest thinking on why such folks are getting more income? N.C. State University economist Mike Walden responds.

“Well, the conclusion many economists have come to has really been driven by technology and in a couple of ways. First, the simple development of technological products and their impact has made people that have technological skills or who are developing new technology much more valuable. And so we’ve seen many fortunes made, and we’ve seen many high salaries made in the last 20 years based on smart people going into technology either as inventors or as managers.

“Secondly, technology has expanded the scale or the range of buyers for particular kinds of products. In other words, if you’re a CEO, you no longer have a company that largely operates within a local market or even a national market. It’s now an international market.

“So, if you have a product where you can get a large part of the international market, that just enormously expands your range and makes your skills — for example, as a CEO — much more sought after and much more valuable. Therefore, you’re going to get paid more.

“Now I should say that the studies that have looked at this have thrown out the notion that a large part of the top one percent are people who have inherited their wealth. That may have been true in the past.  It’s not true today.”

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