If People Were Paid by Ability, Inequality Would Plummet(nytimes.com)
nytimes.com
If People Were Paid by Ability, Inequality Would Plummet
https://www.nytimes.com/2019/11/08/upshot/inequality-paying-by-ability.html
41 comments
Add education, family contacts, financial security, financial support and the non-linear reward for making it to higher positions.
Because the article includes education, let's have a smart kid with good education from a poor family: They still won't study abroad in europe; won't take a year to work on their startup; any startup won't be financed by friends, family and fools; won't be introduced to the CEO of some company by his uncle; won't be meeting people on the golf course; they probably even studied longer and are missing relevant job experience because they had to finance it themselves.
If they are smart they can make it further up, but the inhibitors add up and they won't make it all the way.
Because the article includes education, let's have a smart kid with good education from a poor family: They still won't study abroad in europe; won't take a year to work on their startup; any startup won't be financed by friends, family and fools; won't be introduced to the CEO of some company by his uncle; won't be meeting people on the golf course; they probably even studied longer and are missing relevant job experience because they had to finance it themselves.
If they are smart they can make it further up, but the inhibitors add up and they won't make it all the way.
the inhibitors add up and they won't make it all the way
Yes, but they can make it some part of the way up, putting their kids in position to go a little higher, and so on. Success is largely social, a multi-generational task, which is why parents push their kids so hard: college, and then elite college, is the main step that breaks the cycle. Maybe gen 1 goes to Stanford and joins a FAANG. It's gen 2 who will have the CEO uncle and a shot at founding a FAANG.
Yes, but they can make it some part of the way up, putting their kids in position to go a little higher, and so on. Success is largely social, a multi-generational task, which is why parents push their kids so hard: college, and then elite college, is the main step that breaks the cycle. Maybe gen 1 goes to Stanford and joins a FAANG. It's gen 2 who will have the CEO uncle and a shot at founding a FAANG.
This is true but it's usually not spoken so nonchalantly by those who aren't already in a good position themselves. We should actively remove these barriers to a good life.
A simple and straight forward solution is that every job is required to have a union available by law, we remove most of our inequality to the point where fighting about who has multi-generational privilege is no longer an issue. One step further is worker ownership of the company they work for. Example, instead of being publicly traded, Facebook should be owned by the people that work there, 1 share per employee. It would result in a much healthier environment and less psychopathic corporate behavior.
A simple and straight forward solution is that every job is required to have a union available by law, we remove most of our inequality to the point where fighting about who has multi-generational privilege is no longer an issue. One step further is worker ownership of the company they work for. Example, instead of being publicly traded, Facebook should be owned by the people that work there, 1 share per employee. It would result in a much healthier environment and less psychopathic corporate behavior.
> Success is ... a multi-generational task
Hence the momentum to address the monstrous differences in opportunity that have been created after many, many generations of treating particular groups of Americans as second-class if not outright sub-human.
Hence the momentum to address the monstrous differences in opportunity that have been created after many, many generations of treating particular groups of Americans as second-class if not outright sub-human.
Presumably once the downward pressure is removed, the oppressed group will recover, no? I am troubled by the impulse to see society as this simplistic set of oppressors and oppressed. It seems that almost every group got to play both roles at one time or another in various combinations.
And it seems weird to want to pay back a debt racked up by an ancestor. Or not even an ancestor, just an ancestor of someone who looks like your ancestors. Anyway, I don't think you help oppressed people like that, I think you help them by going in there and teaching and being positive about the real opportunities available - to go to college, get a job, earn a living. Live in a bougie neighborhood, maybe.
And it seems weird to want to pay back a debt racked up by an ancestor. Or not even an ancestor, just an ancestor of someone who looks like your ancestors. Anyway, I don't think you help oppressed people like that, I think you help them by going in there and teaching and being positive about the real opportunities available - to go to college, get a job, earn a living. Live in a bougie neighborhood, maybe.
It's not just racial. It's largely class based, which can be tied to race. It's less oppressors vs oppressed, but more ownership class vs working class. That's why schemes that involve ownership stakes for the average person work out so well. People need to have some skin in the game (society, economically), to feel like a part of it and that they matter. Cut them out due to ownership-class greed and you have a recipe for disaster. Not just human suffering, which is bad enough to purposefully enable on your fellow man, but revolution. Class struggle is the mainstay in societies throughout the ages.
Doesn't that make my point? It's a lot about background and not your ability. It might be in part the ability of your ancestors (if they where on a fair playing ground), but certainly not just yours.
I think there are two classes of things that run under the term "ability". One is creating value for others. E.g., a chef who turns raw ingredients into appealing dishes for other people to eat. The other is to extract cash from existing value creation. Good entrepreneurs of course do this for the value they create. But there are a lot of people who get disproportionate gains from skimming value that others create.
For example, consider the case of Simmons, where a company good at creating value was bought by private equity people who were very skilled at extracting cash: https://www.nytimes.com/2009/10/05/business/economy/05simmon...
I see that some people have a "might makes right" view of this. But I think we over-reward cash extraction, and so under-reward value creation. If we shifted that, we'd get more value creation, and a fair bit less misery.
For example, consider the case of Simmons, where a company good at creating value was bought by private equity people who were very skilled at extracting cash: https://www.nytimes.com/2009/10/05/business/economy/05simmon...
I see that some people have a "might makes right" view of this. But I think we over-reward cash extraction, and so under-reward value creation. If we shifted that, we'd get more value creation, and a fair bit less misery.
The article does a poor job quantifying "ability."
> Most low-wage workers are underpaid relative to their measured intelligence and personality traits, and many of the highest-paid professionals — including doctors, lawyers and financial managers — are overpaid according to the same metrics.
This is a ridiculous comparison because low wage workers are not being paid for their intelligence. Why would anybody ever think that skill at 2 different jobs should be measured by the same criteria?
> Most low-wage workers are underpaid relative to their measured intelligence and personality traits, and many of the highest-paid professionals — including doctors, lawyers and financial managers — are overpaid according to the same metrics.
This is a ridiculous comparison because low wage workers are not being paid for their intelligence. Why would anybody ever think that skill at 2 different jobs should be measured by the same criteria?
Yeah, this article is pretty representative of a general trend to say alot without actually saying anything intelligible.
Should Michael Jordan have been paid equally as high as a baseball player as he was when he was on the Bulls? Same person, same intelligence, same measurable traits.
Should Michael Jordan have been paid equally as high as a baseball player as he was when he was on the Bulls? Same person, same intelligence, same measurable traits.
People are paid by ability: their ability to get people to pay them. In terms of getting paid, that is the only ability that matters.
It's kind of weird to see "ability" as some monolithic trait that people should get paid for. Ability to do what? Maybe you have a great ability to spin plates on your nose. If nobody wants you do that, you're not going to get paid for it.
It's kind of weird to see "ability" as some monolithic trait that people should get paid for. Ability to do what? Maybe you have a great ability to spin plates on your nose. If nobody wants you do that, you're not going to get paid for it.
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In law and finance (and probably everywhere) there are winner-takes-all scenarios where employing someone whose skill is 10% greater than your “opponents” gives far more than a 10% advantage, and hence the marginally more skilled people can command disproportionately higher salaries.
That's relatively tame: see football, where Lionel Messi earns about $100m. Something similar applies to musicians. This kind of "tournament wages" causes a lot of really high income inequality situations.
CEOs argue that their wages are the result of a similar tournament. The example of WeWork suggests that it may in some cases just be a better position for looting money from the investors and staff.
CEOs argue that their wages are the result of a similar tournament. The example of WeWork suggests that it may in some cases just be a better position for looting money from the investors and staff.
Don't forget the https://en.wikipedia.org/wiki/O-ring_theory_of_economic_deve... - Kremer, incidentally, won the Nobel this year (albeit not for the O-ring model).
As Shockley and innumerable analyses have shown, 'ability' defined very narrowly may be normally distributed, but because tasks draw on many abilities and steps can multiply rather than add ('there is nothing so useless as doing well that which should not be done at all'), it's very easy for a bunch of normally-distributed abilities to yield a log-normal distribution of outputs, in which case there is massive inequality in final results: https://www.gwern.net/docs/iq/1957-shockley.pdf
As Shockley and innumerable analyses have shown, 'ability' defined very narrowly may be normally distributed, but because tasks draw on many abilities and steps can multiply rather than add ('there is nothing so useless as doing well that which should not be done at all'), it's very easy for a bunch of normally-distributed abilities to yield a log-normal distribution of outputs, in which case there is massive inequality in final results: https://www.gwern.net/docs/iq/1957-shockley.pdf
Yup. Nobel laureate Michael Kremer points out "O-Ring" industries as another source of non-linearity - where you need N performers to be high-ability in order to achieve some outsized level of productivity, but having even a small percentage of them fail means forfeiting all gains. This creates unavoidable "superstar" effects within these industries.
Also in finance the highest paying skill isn't what most people think of as "financial skill", but rather skill at raising money from investors. The article really falls flat on how it measures ability.
I don't accept the assumption that "ability" equals "education", "IQ", "age", and "personality traits".
1) I've seen too many well-educated co-workers who wont work 2) I've seen too many people with high IQs who can't lead 3) I wish I could report an HR violation for the inclusion of "age" on this list 4) The use of personality traits seemed like an interesting start but left me wanting
For me: it was a swing and a miss
1) I've seen too many well-educated co-workers who wont work 2) I've seen too many people with high IQs who can't lead 3) I wish I could report an HR violation for the inclusion of "age" on this list 4) The use of personality traits seemed like an interesting start but left me wanting
For me: it was a swing and a miss
“If people were paid by their ability to play basketball, inequality would plummet.”
“If people were paid by their height, inequality would plummet.”
Hmm...
“If people were paid by their height, inequality would plummet.”
Hmm...
What about my ability to fit an insane amount of M&Ms in my mouth? I strongly feel that I should be generously compensated for this ability. It's not fair otherwise!
Well done! Shades of principal component analysis.
Paying by ability might lead to increased inequality, and put some workers in holes from which they would never recover.
Paying by ability might lead to increased inequality, and put some workers in holes from which they would never recover.
Why would I pay someone for their ability? Ability by itself is nothing. Ability doesn't generate value, action does.
You might be a strong, mighty genius, but if your ass is "chilling" on the couch 24/7, your exact worth is 0(ZERO)$
You might be a strong, mighty genius, but if your ass is "chilling" on the couch 24/7, your exact worth is 0(ZERO)$
The measure of ability used by the author includes factors like experience, conscientiousness, and enthusiasm, so it's probably not ranking couch potatoes very highly.
Plus One: "Ability doesn't generate value. Action does."
Seems to align well with this study which found that luck and other factors had much more to do with success that deviated from the norm than moderately increased intelligence or other factors: https://hbr.org/2015/11/are-successful-ceos-just-lucky
I had to switch browsers to get more free articles. An interesting read for sure highlighting the equality/inequality impact of the local/regional (S-corp,LLC,etc) vs the national/multi-national (C-corp).
I don't think the aim of the author is to minimize the impact of the later, but to bring attention to how local/regional business policy and the growth of this sector, can have a real adverse impact on income inequality.
I like that he also balances some (not all) concerns between the two poles of US politics: >Beyond a commitment to equality, possible remedies include expanding access to high-quality public services like early-childhood education and community health services for needy families. But the evidence also suggests the need for expanding access to markets and defending their integrity. Both the right and left right would have to make compromises; it would seem to be a fair trade, with big gains for all.
I don't think the aim of the author is to minimize the impact of the later, but to bring attention to how local/regional business policy and the growth of this sector, can have a real adverse impact on income inequality.
I like that he also balances some (not all) concerns between the two poles of US politics: >Beyond a commitment to equality, possible remedies include expanding access to high-quality public services like early-childhood education and community health services for needy families. But the evidence also suggests the need for expanding access to markets and defending their integrity. Both the right and left right would have to make compromises; it would seem to be a fair trade, with big gains for all.
If you're using Firefox you can just click on the lock in the url bar and go to Clear Cookies.
Or just open it in another container.
Screw that, I'm not going to install Docker just to read NyTimes articles.
Firefox multi-account containers.
Absolutely nothing to do with Docker.
Edit: is docker holding such a strong monopoly over the word container? Dangerous precedent.
Absolutely nothing to do with Docker.
Edit: is docker holding such a strong monopoly over the word container? Dangerous precedent.
These replies are fantastic! Thanks for the laugh :)
It would also dramatically change society as currently valuable social networks that do not improve ability would be abandoned in favor of groups that improve ability. The MBA degree would become irrelevant overnight as it's a very expensive networking and screening process.
You know, people do actually learn things at school and a place to practice skills that, in the real world, there's little opportunity to find and/or require taking on significant risk.
No, inequality would skyrocket. The most able people are those who are usually most privileged because they've been groomed their entire lives to go off and be useful.
How do you measure ability objectively?
Perhaps, but someone's latent ability to do anything does not provide anything of value to anyone whatsoever. Conversely someone of "modest ability" who takes a risk to actually provide things people want is being, in a way, much less selfish.
A man digging a hole in the desert that no one wants, regardless of how much "ability" or "effort" went into the excavation is inherently selfish, but almost every economic system _besides_ capitalism would see that man rewarded handsomely.
...and I'm not trying to be glib about inequality, which I think is the most serious problem of our time. I'm just suspicious that anything we used to try and replace capitalism with would result in a lot of "holes in the desert". Read about the surplus of baby shoes in the Soviet Union...
There is something I think of as the "paradox of capitalism" that describes how capitalism is _simultaneously_ the best system for determining prices and the worst form of government.
A man digging a hole in the desert that no one wants, regardless of how much "ability" or "effort" went into the excavation is inherently selfish, but almost every economic system _besides_ capitalism would see that man rewarded handsomely.
...and I'm not trying to be glib about inequality, which I think is the most serious problem of our time. I'm just suspicious that anything we used to try and replace capitalism with would result in a lot of "holes in the desert". Read about the surplus of baby shoes in the Soviet Union...
There is something I think of as the "paradox of capitalism" that describes how capitalism is _simultaneously_ the best system for determining prices and the worst form of government.
I can't read because of paywall, but I tend to agree. Top earners usually aren't particularly talented, and I tend to think that the impact of chief executives is also drastically overestimated on average. That being said, good luck finding reliable metrics for ability. Those often skew with income, and many industries, especially software, reward highly skilled personnel by moving them OUT of their strength and into leadership positions. Kind of ranty, not sure I have a point.
Do you have any proof of this?
Why would a company pay a CEO millions if they have no talent? If that were the case, they would just find a random person and pay them minimum wage.
This sounds like the reasoning of a worker that thinks managers don't actually do anything all day, when the reality is much different.
Paying by ability is foolish. I know many people that have the ability to get a good job, but choose to smoke copious amounts of weed and instead sit on the couch all day. It would be like valuing companies based on the idea only.
Why would a company pay a CEO millions if they have no talent? If that were the case, they would just find a random person and pay them minimum wage.
This sounds like the reasoning of a worker that thinks managers don't actually do anything all day, when the reality is much different.
Paying by ability is foolish. I know many people that have the ability to get a good job, but choose to smoke copious amounts of weed and instead sit on the couch all day. It would be like valuing companies based on the idea only.
CEO compensation has risen 940% since 1978: https://woww.epi.org/publication/ceo-compensation-2018/
Over the same period, ordinary worker compensation has risen 12%. Is your theory that CEOs have gotten 940% better in the last 40 years?
I'd say no, not really. (Indeed, I think there's reasonable evidence they've gotten worse.) They've just gotten better at extracting cash. And if you're wondering why companies would pay way more, you should think about the fact that "companies" don't set CEO salaries. Company boards do. And who's on boards? CEOs and other high fliers. ., I also think there's a positive feedback loop here. One part is on the payment side. When companies are looking for a new CEO, it's like somebody shopping for a rare and important purchase, like a new car or like surgery. If they get it right, everybody's happy; if not, it could be a disaster. So there's a strong incentive to pay an above-average amount, in hopes of getting an above-average outcome.
The other part is on the company structure side. An expensive CEO is expected to Do Things, to be dramatically in charge. That means creating company structures and a company culture that are very CEO-focused. Then the next time the board hires a CEO, they have an even stronger need for someone who is extraordinary. So the next CEO gets an even bigger slice of money that previously would have gone to investors and the people who do the actual work.
As an alternative, consider that a lot of tech's biggest moneymakers are run differently. Instead of concentrating power at the top, power is more distributed. The average worker is not seen as a replaceable cog, but valuable talent. CEOs are not turning over every few years, but stay around for decades. And consequently, the pay inequality is lower.
Over the same period, ordinary worker compensation has risen 12%. Is your theory that CEOs have gotten 940% better in the last 40 years?
I'd say no, not really. (Indeed, I think there's reasonable evidence they've gotten worse.) They've just gotten better at extracting cash. And if you're wondering why companies would pay way more, you should think about the fact that "companies" don't set CEO salaries. Company boards do. And who's on boards? CEOs and other high fliers. ., I also think there's a positive feedback loop here. One part is on the payment side. When companies are looking for a new CEO, it's like somebody shopping for a rare and important purchase, like a new car or like surgery. If they get it right, everybody's happy; if not, it could be a disaster. So there's a strong incentive to pay an above-average amount, in hopes of getting an above-average outcome.
The other part is on the company structure side. An expensive CEO is expected to Do Things, to be dramatically in charge. That means creating company structures and a company culture that are very CEO-focused. Then the next time the board hires a CEO, they have an even stronger need for someone who is extraordinary. So the next CEO gets an even bigger slice of money that previously would have gone to investors and the people who do the actual work.
As an alternative, consider that a lot of tech's biggest moneymakers are run differently. Instead of concentrating power at the top, power is more distributed. The average worker is not seen as a replaceable cog, but valuable talent. CEOs are not turning over every few years, but stay around for decades. And consequently, the pay inequality is lower.
That is almost certainly correlated to specific "ability" in the task they are getting paid to do on average although you could argue to what extent.
The subtext here is "things would be more fair if you let me be dictator and pay everyone based on my subjective perception of their ability which is more fair than the collective decisions of a free society."