In today's NYT, Bob Frank argues that since private markets compress pay differences relative to productivity differences, libertarians should accept government redistribution of wealth/income.
I am not sure there is one single sentence in this editorial that makes sense. Certainly not its imputing of actions and beliefs to "libertarians" or its ritualistic but content free invoking of "economic theory" or its claim of a stylized fact without any supporting evidence beyond one ridiculous example, or its bizarre equation of private pay practices with coercive government actions.
Here, I'll just concentrate on the bad economics.
Frank's example of where pay doesn't follow productivity is carpenters in a framing crew. He says:
The most productive carpenter in a framing crew, for example, might produce twice as much as his least productive colleague, but is rarely paid even 30 percent more.
This is pretty nuts in a number of dimensions.
First, where do these numbers come from? The weasel words "might" and "rarely" are there to cover his ass, but this is just made up out of whole cloth.
Second, a framing crew produces a framed house. It is team production. Marginal products are notoriously difficult to measure in this context and there is a lot of "economic theory" about this issue. It would be almost impossible to verify that one framer produced "twice as much" as another inside of a single crew.
Third, just widen the issue from carpenters on a framing crew to carpenters in general and his point totally fails. The least skilled work on framing crews. Higher skilled are the finish carpenters who do make a lot more money (easily more than twice as much). The highest skilled are artisans turning out custom furniture pieces and they in turn make a lot more money than do finish carpenters (again, easily more than twice as much).
I am not going to put quantitative numbers on these classes (with weasel words to give me an escape valve), but I am confident that, over the trade of carpentry in general, variations in earnings are extremely tied to variations in skill and these variations are quite large.
Frank then claims that the two highest paid workers in an enterprise rarely earn more than the three lowest paid.
Man, I guess CEO pay is really not an issue in this country after all.
Also in Frank's own industry, higher education, this is certainly not the case.
In econ departments and b-schools at least, the two highest paid full professors easily earn more than the three lowest paid assistants.
And of course, if you take the unit of observation to be the university, the gap between highest and lowest "employee" is very very large. OU's president makes over $250K and some staff make less than $25K.
There are a number of fields where pay is close to linearly related to productivity. Piecework jobs in factories and sales jobs on commission are two obvious examples.
Finally, there is a whole literature about the exact opposite case than the one Frank claims to be telling, where there is increasing returns to talent.
Writing, acting, making music, professional sports, and several other fields of endeavor all exhibit this trait.