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An increase in rents is behind the rise in inequality

Eileen Appelbaum

Eileen Appelbaum delivered the David Gordon Memorial Lecture at the Chicago Meetings of the Union of Radical Political Economics (URPE). The lecture, and the comments by John Schmitt will be published later in the Review of Radical Political Economics (RRPE). The gist of the argument is that ever stronger corporations use their dominant position in markets, patent and copyright protections, and their political influence to obtain favorable regulations and tax breaks to earn monopoly rents at the expense of consumers. She noted that the evidence suggests that inequality has increased more between establishments (firms) than within them, which is impressive given the increasing gap between management and plant salaries. She cited the work by Richard Freeman on how two thirds of the increase in inequality is caused by between establishment differences.

Freeman argument was made popular by his two clones story. According to him:
"consider two indistinguishable workers, you and your clone. By definition, you/clone have the same gender, ethnicity, years of schooling, family background, skills, etc. In 2006 you/clone graduated with identical academic records from the same university and obtained identical job offers from Facebook and MySpace. Not knowing any more about the future than the analysts who valued Facebook and MySpace roughly equally in the mid-2000s, you/clone flipped coins to decide which offer to accept: heads – Facebook; tails – MySpace. Clone’s coin came up heads. Yours came up tails. 
Ten years later, Clone is in the catbird’s seat in the job market — high pay, stock options, a secure future. You struggle. Back to university? Send job search letters to close friends? Ask distant acquaintances to help? The you/clone thought experiment may seem extreme, but recent research that I have conducted with colleagues finds that the earnings of workers with near-clone similarity in attributes diverged so much by the place they worked that rising inequality in pay among employers has become the major factor in the trend rise in inequality."
This, the fact that workers with similar skills get paid significantly different wages, suggests to her that the old story that inequality results from skill-biased-technical-change (SBTC) is incorrect, and that the power of corporations to extract rents can be seen as a New Labor Segmentation, which is superimposed on the old one, researched by David Gordon and his co-authors.

I am looking forward to the publication of her paper.


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