The Weak Demand for Equality

Frank Levy writes:

[W]e do a lousy job measuring the inefficiency (and loss of creativity) that comes from economic insecurity, stagnant wages, and shrinking benefits. There are many things we can do without turning our economy into the new France. It is about time we started trying.

If workers had a strong enough demand for more benefits relative to wages, or for more job security relative to wages, I think employers would be willing and able to provide those job features. They might even be willing to provide private long-term insurance against variance in individual compensation.

Yes, further reductions in the variance of compensation would have to come from government, and while those policies could have real productivity costs, they could be worth their costs if people were averse enough to compensation inequality. However, the key question is how strongly people want to reduce compensation inequality.

I see no fundamental reason that people should or should not want to reduce inequality or insecurity to any particular degree. These are just questions of preferences, pure and simple. While one could complain, as does Florida, that “the problem is that virtually no one in a position of leadership (in either party) seems aware of it or willing to talk about it,” a simpler theory is that this is not a “problem” the public wants to solve.

It is interesting to note that there are many kinds of inequality that people could in principle be averse to, including unequal achievement in sports or music, unequal number or quality of friends, unequal number or quality of sexual partners, unequal lifespans, and so on. Government policy could be used to reduce any of these types of inequality, if the public so desired. Yet academic discussions focus almost entirely on equality of compensation, and sometimes on access to education and health care.

Also from this issue

Lead Essay

  • In this month’s lead essay, Richard Florida, bestselling author of Rise of the Creative Class, argues that the old industrial era has given way to a new creative era. Science and technology, art and design, and culture and entertainment have superceded natural resources and industrial infrastructure as the key to economic success. Talent is now the key factor of production and winners in global economic competition will be those who can best deploy and attract it. However, the creative economy is a source of increasing inequality both within and between nations. Florida argues that the key to bridging the gap between the creative and service sectors is to harness the creativity of service sector workers to make their jobs both higher-paying and more satisfying.

Response Essays

  • In his reply to Florida’s lead essay, George Mason economist Robin Hanson argues that creativity matters less for economic growth and the future of work than Florida thinks. According to Hanson, Florida’s emphasis on creativity distracts us from the prospect of a truly revolutionary change to work and economy just over the horizon: rapidly exponential growth driven by smart machines. “An economy with intelligent machines could grow very rapidly indeed,” Hanson argues, “and induce rapidly falling human wages.” Will we be prepared if we’re busy making the Creative Class comfortable?

  • MIT economist Frank Levy agrees that creativity is more important than ever in a world where computers and foreign workers can do routine work less expensively than domestic workers. This shift, Levy says, requires better education in problem-solving. But education can only do so much. The gains from rising labor productivity are going largely to the wealthy, Levy argues. Unless policies and norms are reinstated that spread those gains more widely “all of the nation’s institutions will be at risk.”

  • While agreeing with much in Florida’s essay, UCLA economist Edward Leamer suggests that the key to understanding the future of work isn’t creativity, but talent. “Is a personal computer like a forklift or a microphone?” Leamer asks. Forklifts are forces for equality, washing out individual differences in ability. Microphones, on the other hand, amplify difference in ability and talent. If training cannot create talent, but can only enhance it, the gains to training will be highest for the talented, and it will not be possible to close the talent and wage gaps by offering more training to the less talented.