Still more on pay gaps

More on the pay gap from NPR

Short version: while the pay gap gets much bad publicity, it is not entirely bad. The gap helps create incentives to work harder and get more education. Moreover, the gap is not some conspiracy, but rather brought about by some of the same forces (technology being paramount) that we see at work in large chain retail stores (the CEO of a large chain will get much more in real terms than the manager of a small chain would have in the pre-Wal Mart world), professional sports (superstars get paid much more than journey-man players), and many other facets of life.

Longer version:
This gap is not however all bad: analysis from Nobel Prize winner Gary Becker who brings some common sense to the discussion.

""I think inequality in earnings has been mainly the good kind," Becker says. "I strongly believe it's been mainly the good kind."

How...?According to Becker, good inequality gives more rewards to people with more education, more skills and a greater ability to create value in the world.

"If you're in an environment where knowledge counts for so much, then if you don't have much knowledge, you're going to be a loser," Becker says."

The problem of course is if there are too many losers, they become a drain and a hindrance on the economy and everyone else. (See Bernanke's comments from two days ago: "the public at large might become less willing to accept the dynamism that is so essential to economic progress."

One group that is unlikely to get much sympathy but who suffer a very large pay gap is the professional athlete in the minor leagues. For instance, NPR looks at the NBA developmental league and finds many of their players make a small fraction of what NBA superstars make.

NPR : Almost-NBA Players Take Home Paltry Salaries:

"With an average annual salary of more than $5 million, NBA players are the highest-paid athletes in professional sports. But for the many skilled professionals who haven't quite made it into the NBA, the financial gulf is huge.

Overall the pay gap is a tough problem to deal with: on one hand you need incentives, but on the other, those who do fall behind need a second chance to recover. This second chance can come through education that lifts them up and not regulations that hold the top achievers down.

(BTW lest you think that this is just some liberal academic speaking who just does not want there to be a pay gap, remember I am also GENERALLY in favor of rewriting underwater executive stock options. It is not about the winners and losers, but about improving incentives.)