meritocratic myths

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The book Success and Luck: Good Fortune and the Myth of Meritocracy asks some questions:

Why do hardworking people with similar talents and training often earn such dramatically different incomes? And why, too, have these earnings gaps grown so much larger in recent decades?

"Almost no other questions," he answers, "have proved more enduringly fascinating to economists:"

The traditional approach to these questions views labor markets as perfectly competitive meritocracies in which people are paid in accordance with the value of what they produce. In this view, earnings differences result largely from individual differences in "human capital"--an amalgam of intelligence, training, experience, social skills, and other personal characteristics known to affect productivity. Human capital commands a rate of return in the marketplace, just like any other asset, suggesting that individual pay differences should be proportional to the corresponding differences in human capital.

He notes, however, that "not even the most sophisticated measures of human capital can explain more than a tiny fraction of individual earnings differences during any year," and points out that "The human capital approach is also completely silent about the role of chance events in the labor market"--which prompts an additional question:

If markets have been growing more competitive over time, why are the earnings gaps unaccounted for by the human capital approach larger than ever?

He mentions his 1995 book, The Winner- Take-All Society (with co-author Philip Cook) and reiterates that "Winner-take-all markets generally display two characteristic features:"

One is that rewards depend less on absolute performance than on relative performance. [..] A second important feature of winner-take-all markets is that rewards tend to be highly concentrated in the hands of a few top performers.

That certainly sounds relevant of late. "Events of the past two decades," he observes, "have provided little reason to doubt that runaway growth in top incomes has resulted in large part from increasing leverage in the "winners" positions, in tandem with growing competition to fill those positions:"

By every measure, markets have grown more competitive, and the most productive players have gained additional leverage since The Winner-Take-All Society's publication in 1995.

What's also clear is that the economic forces that have been causing the spread and intensification of winner-take-all markets have by no means run their course. We can expect continued growth in the intensity of competition on the buyers' side for the best talent, and on the sellers' side for the top positions.

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This page contains a single entry by cognitivedissident published on May 7, 2016 12:06 PM.

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