One of the most important ideas that I am trying to inject into the debate about the consequences of growing inequality on American society is ‘elite overproduction’. I use the sociological definition of elites: it’s the small proportion of the population (typically 1-2 percent) that concentrate power in their hands. In other words, these are the power-holders. Because wealth is one of the types of power, the elites typically include the top wealth-holders. More generally, there are four sources of social power: economic/financial, coercion/military, administrative/political, and ideological/religious (see Michael Mann’s work on this)
Elite overproduction is defined as an oversupply of contenders for power positions. Note that it’s not just too many ‘established’ elites (actual power holders); it also includes too many contenders who don’t have power but aspire to it (these are ‘elite aspirants’ in the jargon of the structural-demographic theory).
One of the key processes in the structural-demographic theory is that elite overproduction increases economic inequality. What is particularly important is that inequality increases not only population-wide (that is, between the elites and the commoners—non-elites), but also within the elites themselves. The mechanism postulated by the theory that leads to growing intraelite inequality works as follows. When conditions of labor oversupply create a favorable economic conjunction for the elites, upward social mobility into the elite strata begins to swell elite numbers. After a time lag, the elite numbers increase beyond the ability of the society to support all of them. As a result, intraelite competition for the limited number of positions in business and government becomes very intense. The problem is exacerbated by rapidly increasing expectations of the income levels needed to maintain elite status (in part, resulting from conspicuous consumption, which is, in turn, fueled by intraelite competition).
As intraelite competition intensifies, it results in ‘winner-take-all’ mentality. The elite aspirants who end up among the winners tend to receive a disproportionate amount of rewards, but at the same time there is a growing proportion of losers. As a result, intraelite inequality explodes: while a minority enjoys runaway incomes and fortunes, a growing majority are frustrated in the attempts to attain elite status (that is, to secure income level that is necessary for maintaining elite status).
Growing intraelite inequality typically results in the distribution of incomes becoming increasingly more right-skewed, with a long ‘fat tail’ reflecting the incomes of the winners. In more extreme cases, however, it is also possible that the distribution of incomes actually becomes bi-modal. That is, it develops two humps, one for the winners and another one for the losers, with very few individuals in between.
An actual example of this dynamic in action is provided by the evolution of the distribution of starting salaries of American law school graduates during the 1990s. Starting in the 1970s the numbers of lawyers began growing much faster than the general population, so that over the last 40 years the numbers of lawyers per 1000 population increased from 1.6 to 3.9 (this is documented in my forthcoming book, Structural-Demographic Analysis of American History). Twenty years into this period, in 1991, the distribution of starting salaries was still unremarkable. There was a mode (meaning, the most common level of salary) at $30K and a ‘fat tail’ extending to $90K.
Source: P. Turchin (data from NALP)
In other words, it was a fairly typical income distribution (which usually have longer right tails, reflecting the incomes of well-off). In 1996 the right the tail becomes even thicker, and a minor peak appears at $85K.
But the most dramatic change develops over the next 4 years. By 2000 there is a second peak at $125K which is nearly as high as the peak at $40K.
In the following years the right peak shifts even farther away from the left peak, to $160K, and grows in magnitude. By 2010 it dwarfs the peak centered around 50K:
More recently, as a result of the Great Recession and collapsing demand for law school graduates, the right peak has declined to 14 percent, although it is still at $160K (due to, probably, the stickiness of starting lawyer salaries).
During the same period the left peak has hardly advanced and is currently (as of 2011) located at $50K. Given that the debt burden of an average law school graduate is twice that (over $100K), it means that for all practical purposes the individuals in the ‘loser’ category will never be able to repay their loans. In other words, the group of elite aspirants who have gone to the law school since 2001 have been sorted into two completely separate categories: those who succeeded in entering the top ranks of the elites and those who have failed utterly, with very few people in between.
This is a remarkable development, I am hard pressed to come up with another example of a two-humped distribution of incomes.
It is fashionable in some circles to demonize the lawyers (well, some pretty hilarious jokes are the result). But this shows that there are lawyers, and then there are lawyers.
The final thought. Revolutions are often made by frustrated elite aspirants. There is a disproportionate number of lawyers among them. Abraham Lincoln, the leader of what really amounted to the Second American Revolution was, of course, a lawyer. And so were Vladimir Lenin and Fidel Castro…
“I am hard pressed to come up with another example of a two-humped distribution of incomes.”
How about PHd graduates in the humanities?
OK, but do you have data? Just a plausible guess is not enough…
Maybe the one group, lawyers, is breaking into smaller tribes, elite lawyers and all other lawyers and what is seen is the transition. I am supposing that the one group, lawyers, was at one time part of another group, say college grads, before breaking out.
Yes, it is certainly splitting into two groups: those who make it and become established elites, and those who will be frustrated elite aspirants burdened by debt to the end of their days. It’s pretty clear that the only way you can make it into the group of winners is to enter one of the prestigious schools, not those recently started by a bunch of state universities.
England has two lawyer groups, the Barrister elite and all other lawyers, Solicitors. What mechanism is in place to pacify the solicitors?
Barristers may be considered more “elite” but there are a goodly number of solicitor jobs that pay extremely well, much better than a lot of barrister jobs. See, e.g., http://www.legalcheek.com/2012/06/are-barristers-the-doctors-of-the-legal-profession-and-solicitors-the-nurses/ It should also be noted that within the legal profession, even at the highly paid end there are various levels of eliteness and people go up and down the ladder and even out of the elite level and out of the profession entirely, at quite volatile rates, so just because you got a 160 K starting salary and can pay back your loan doesn’t mean you might not be out on your butt within 2 years.
‘It’s pretty clear that the only way you can make it into the group of winners is to enter one of the prestigious schools’
Prestigious school is considerably more expensive, so your risk of failure to make it is higher. You risk your children paying debt, if you ever have them that is. Prestigious school sells prestige, not workplace, especially when you are not appropriately connected. Then you compete with descendants of winners, e.g. winners.
Ph.Ds in the sciences come to mind as well. Not sure what the graph looks like there, but there are certainly a lot of Ph.Ds in science who don’t end up getting a permanent, full-time position at an institution that is as prestigious as the one that granted them their doctorate. Many (a disproportionate number of them women) end up permanently on the adjunct track where they’re lucky to crack 35k a year.
Again, there are a lot of situations like this. But typically theu result in a Pareto-type distribution, in which the right tail becomes thicker and thicker. Not the two humps.
Speculating here. PhD in Biology and MD may have been one and the same group at one point in the past. Then the double hump occurs and they split into the two groups that we see today. Adam Smith’s division of labor theory at work?
Perhaps the lawyers need to increase the barriers to entry. I read that the CPA now requires 5 years education, a BA plus a MA. That should cut back on the supply.
I am sure law schools would adore making extra tuition by forcing legal aspirants to attend more school. I doubt it would discourage anyone from entering the profession though, they would just rack up an even bigger loan that would be hard to pay back. What is really needed to curb supply of lawyers is to shut down about half the law schools, and that could probably only be accomplished by denying student loans to the less qualified law school applicants, who in turn would not be able to enter the applicant pool, which in turn would make a lot of the lower ranked schools go out of business. As it is, if everybody who wants to be a lawyer can get a nice big fat six figure loan, the schools keep getting paid and there is no impetus to curb the number of lawyers popping out of the pipeline. Another way to curb supply would be to set the pass rate for the state bars way high so few qualify to practice, but that would be kind of cruel given that by the time the aspirant takes the bar he has already racked up the large educational loan.
Every person with a university degree, not just a lawyer, is an ‘elite aspirant’ in a sense, is he not? They expect that it will pay off.
I can imagine the frustration of those who find out that their jobs pay not nearly as much as they thought they would, or there is no job at all, or there are some but they ‘overqualify’ and so on. I don’t think that such a person after spending years ( and paying a fortune in the case of US plus saddled with debts ) to get a degree would settle on flipping burgers and be happy.
In an ideal world every country has to produce only as many university graduates as its economy can absorb.
Please, don’t think that I am against education! 🙂
I thought Castro was a doctor.
You may be thinking of Ernesto “Che” Guevara, who was a physician, and was of course very active in Castro’s Cuban revolution, despite having been born in Argentina.
All biglaw firms pay new graduates exactly the same, even though some firms are twice as profitable as others (scroll down). (that 2x is an interquartile ratio, inside of biglaw; though perhaps the rankings move a lot from year to year)
Michael Lewis’s memoir, published before your first graph, says that law firms had to raise salaries to prevent defection to Wall Street. Perhaps the profitability of Wall Street is what made the law firms so rich as well.
Another thing I find interesting is law school tuition. As I understand it, private law school tuition has closely followed biglaw starting salaries (total tuition ~ first year salary), even though very few schools send graduates to biglaw. And if you include public schools, tuition is less dispersed than in 1990, despite starting salaries being more dispersed.
Average tuition in private law schools (unadjusted for inflation):
1990 — 11,728
2000 — 15,823
2010 — 30,529
So, while the peak moved from 125K in 2000 to 160K in 2010, tuition doubled.
Thanks, my numbers were out of date.
Private law school tuition has been increasing exponentially since at least 1985. But I don’t think it has been increasing any faster than undergraduate tuition, so maybe it’s not interesting and the cause is probably not biglaw. Biglaw starting salaries increased at the same rate for about ten years 1997-2007. They may have quickly grown in the preceding ten years, but it’s hard to tell because distribution of salaries was not as peaked and overlapped other starting law salaries. The cause could be tuition, but it’s probably too little data to tell.
After 2007, biglaw starting salaries became even more peaked and stopped increasing. Everyone got a nominal salary of exactly $160k, where in 2007 it was the mode, but lower salaries existed.
Are these figures in 2010 (or whatever dollars) or unadjusted?
All figures in current dollars. I.e., unadjusted for inflation.
B.B, “Dr”, Doctor, in Cuba is for graduates, not just for MDs or PHD (like in continental Europe) It was Che Guevara who was a physician, MD.
This is interesting data, but I am reasonably skeptical about the possibility to scale up the distribution of wages on one particular labor market to the level of the distribution of wealth (or power) of the whole society. At least, I do not know of a single example where the distribution of wealth within the entire country would be different from the pyramidal (monotonically decreasing) distribution. And there are very good reasons for that: to preserve his power upper classes must share part of their power with the underlying classes and so on up to the base of the “pyramid of power”. Thus, the “intermediate classes” can not simply disappear from the society power structure (There are a lot of predictions that technological development will eventually make “intermediate class” unnecessary, although at the moment it is rather a prediction for the distant future).
It is noteworthy that the distribution of wealth in US has not changed over the past few decades, unlike the income distribution.
With regard to the current trend on the increase of the income inequality in US, perhaps the simplest explanation is this: after the victory in the Cold War there was a weakening of the state bureaucracy, for example, international corporations received significant tax relief and the opportunity to divert money into offshore accounts as a result, the distribution of income has become more conform to the distribution of wealth(which has always been very unequal throughout history).
I never said that the distribution in a particular segment can be scaled to the whole society. On the contrary, what happens to lawyer starting salaries is quite unique and pathological.
Distribution of wealth in the US has changed dramatically over the last 30 years. In 1979 the top 1% controlled 20% of the total wealth, on 2007 it controlled 35%.
Dramatic? It very much depends on how you define the term “dramatic”.
For example, if we take the same indicator, but for a little bit different time interval, we get:
In 1983 the top 1% controlled 31% of the total wealth; on 2010 it controlled 35.4%. This is very close to the historical average 32.5% or to the mid-60s value 34.4%.
(The changes will become even less pronounced if we do not focus on the wealthiest 1%, and a look at the distribution of wealth in general.)
Is this dramatic?
I think that we could assume the technical definition for the term “dramatic change” as a change leading to alteration of the type of distribution. From the perspective of this definition, the distribution of wealth has never undergone a “dramatic change” (a type of distribution did not change during the observation period). However, the situation is quite different if we consider the distribution of income, there is a dramatic change (the transition from a unimodal to a monotonic distribution, aka the disappearance of the “middle class”) taking place right now.
By the way, I find your idea of elite overproduction rather interesting; although not quite agree that it should always lead to an increase in inequality.
really like that “source” thing; the fidel card is fabulous
What % of lawyers responded to you survey ?
a simple explanation: in other fields, if a set of firms is colluding to set salarys, someone can hire a lawyer, and sue the firms (didn’t something similar happen to ivy scholarships ?)
who is gonna sue the group of elite law firms for colluding on salarys ?
Talk about a clm (career limiting move)
Good point. Judging from what I have read about the $160,000 salary, it is indeed a result of collusion among the elite law firms.
This is indeed interesting. I think it was the french antropologist Emmanuel Todd, who also mentioned the increasing number of law school graduades in one of his books. (But only briefly.) But the rise of income inqualitiy was one of the major themes of his 2003 book “After the Empire”.
As far as I know, it was Jack Goldstone who proposed using lawyers as a proxy for elite overproduction in his 1991 book. More generally, demand for advanced degrees as a result of increased competition is at the core of Randal Collins’ “The Credential Society”.
I think this is a canard. The problem with lawyer’s inequalities is not rising starting salaries. Starting salaries have risen but not astronomically over the last 15 years. There was a rapid rise in the late 90s due to the dot com boom, but it has stalled over the last 10 years.
The problem with the law firm economy is actually the same as for the economy as a whole. It’s the rising take of those at the very top. If anything starting the growth of starting salaries has not kept up with the growth of per partner profits at firms.
In 1996, big firm starting associates earned $80k, while average profits per partners was just under $500k. Now starting associates are $160k, while average profits per partner is about $1.3m.
You’d be naive if you thought the increase in profits per partner went to all the partners equally. Law firm partnership itself has been devalued, and split into 2 tiers, with a tier of new non-equity partners created. And even among equity partners, the disproportionate share has gone to the top of partnership food chain.
Associate salaries haven’t kept pace with GDP per capita growth either. From your own graphs, salaries were around 125k in 2000, and 160k in 2013. US GDP per capita was 36k in 2000, and around 52k now.
The prestige of the law sheltered the law graduates and the law firm economy for a while, but now the same forces of inequality that has hit society has a whole has hit them as well. The need for the very top (even higher than 1%, maybe 0.1% or 0.001%) to keep increasing their share of the pie, to keep up with the other very tops forces all the tiers below them to take a hit.
The waterline used to be somewhere below the middle class, but now it’s creeping up to the upper middle class.
The most distinguishing characteristic of the current form of inequality is not that the top is taking so much or even that it’s bimodal. It’s that the inequality is fractal. Whatever level of society you’re at (even if you’re at the top), you’re seeing those above you move up so fast, that you’re afraid you can’t catch up. It’s true for the 90% looking at the 10%, for the 10% looking at the 1%, for the 1% looking at 0.1%, and for 0.1% looking up at the 0.001%.
From your approach, is it true to say that the current trend is “accelerated monetization of social/wealth/ property status”?
In the case of law firms, it is reflected in the fact that the owners (equity partners) are using his opportunities to capture as much of the pie to protect his status from non-owners (non-equity partners). In other words, they use to convert the wealth (property rights) into current income.
I’m not sure it’s so antagonistic. Top law firm partners feel the need to keep up per partner profits growth year after year, whether in good years or bad.
Just as with corporations this is impossible (as residual claimants similar to common shareholders, they should take the risk of down years along with the upside of good years). But modern financial theory/banking specializes in offering solutions to the impossible.
Which is to constantly downscale or de-equitize the organization to increase ROI. And to keep pushing risk down on the people below. This is at the expense of long term organizational interests (growth, retaining capabilities and maintaining good working relationships), but it does create a safe ever growing share for people who are above the cut. When practiced on a large scale, at all levels in society, it creates this fractal distribution of income/wealth.
People don’t see this because it’s like survivor bias clouding the metrics of stock market and hedge fund returns for years. For those who make it, the basic numbers keep going up (and steady too!) so they feel they must be doing something right.
I suppose in practice this might look like an accelerated monetization of status. But I don’t think it’s really intentional. They’re not trying to draw down their status capital, they’re actually only trying to avail themselves of an elite dream (only upside no downside). Drawing down their status capital would make them cringe — after all, money itself is suspicious these days (fears of inflation and all), status might be worth more in the long term.
But they don’t feel an immediate loss of status from this maneuver. Due to the halo effect, the winner’s individual status actually might increase faster than the accelerated depletion. In the short term, too it might be a motivational tool, as those left out blame themselves and rededicate themselves to provide more to the system. It’s only when those effects run out though, that the downsides become apparent.
So until then, everyone feels the pressure and the fragility but no one can find their way out. As Chuck Prince famously said, as long as the music is playing, you got to keep dancing.
This is an interesting analysis, and I think it does capture an important part of what’s going on.
Regarding your last statement, by the time you are in the 1 percent looking higher, or even in the 10 percent looking at the 1 percent, you are likely to be reasonably happy or at least okay with where you are, with your needs met. It should also be said that a lot of attorneys including at Biglaw firms remove themselves from that environment because even though you’re making a high (compared to the general populace, though it still might not be as much as the elite partner in the corner office) salary, there are a lot of tradeoffs to working there such as lack of leisure time, limited ability to advance for reasons that have nothing to do with your ability, increased pressure to specialize in something profitable and market factors that could come along and limit opportunities in what you’ve specialized in. In short, you have enough money to pay your loan and live reasonably well so you’re more likely to be making work decisions based on factors other than just income.
I take your greater point about elite overproduction though, because there’s less rooms for elites in society in general. But that’s solely because the elites above them (it’s elites all the way up) have taken even the lesser elite’s share of the pie. Not because there’s less to go around, or we have too many elites numerically compared with the past.
We do have more elite aspirants, and the winner-take-all mentality has taken hold, so both processes are operating synergistically. I don’t see why it has to be one or the other.
Agree. The winner-take-all dynamic does drive up the number of aspirants though, because the success is so visible and unbalanced. It’s like a lottery ticket and a lot of people have lot shot biases.
Is wealth possessed a good metric for status? Not always. Bank accounts can soar exponentially but class status only rises in jumps. Every level has a number of markers – diet, school your kids go to, holiday destination, connections you have, assets you own, clubs you are members at, parties you can throw. Unless you can consistently and easily hit all of the markers of that social circle, you will probably remain a class level below. Friends, family and associates can be a drag to attaining a higher class level (likewise they can elevate you to a higher class, or keep you afloat when you fall), and so can your own culture. Therefore, A LOT of excess wealth must be required for a class jump to overcome these drags. The simple model of more wealth = higher class level must be wrong. Perhaps this could explain the bimodal income distribution. In order to get into the class level at the very top, the elites just below need a very very very big push.
This phenomenon is well known and studied (Economics of Superstars) at least since Adam Smith: if there are rents to be got from an activity and the brightest people seeking to enter the profession the prize to the winners in the race must be very big. It happens also with actors, doctors, musicians etc http://users.polisci.wisc.edu/schatzberg/ps616/Rosen1981.pdf
what is more interesting from your post (and your column in Bloomberg) is the social effects in terms, not of intraelite inequality but in equality in the Society at large. Other effects: too many entrants in a profession with a big social waste or too many rent seeking activities on the part of the group to “feed” all the new entrants. That is probably the case with lawyers in the US where lawyers take more from the GDP than in any other developed country and where lawyers (trial lawyers specially) are the main contributors to political campaigns.
You must think lawyers are very altruistic if they seek to feed all the other new lawyer entrants. Lower elites have stopped trying to feed new members or reproduce their class a few years ago. Same with doctors, actors, musicians and many other professions. Witness the explosion of fashion industry interns and reality show / youtube stars for the meager share doled out to the young.
Only lobbyists, CEOs, personal assistants and bankers are still expanding their group’s share of the pie. And even bankers are dropping out (or feeling the urge to eat each other) to do so.
Sorry for my bad english. Just a tip: Richard Posner wrote a paper some years ago making the case for the position that “it is the level of income, rather than income equality, that is important to the maintenance of political community” http://www.law.uchicago.edu/files/files/44.Posner.Community.pdf
I guess Shakespeare was correct about what we should do about lawyers.
Hi Peter, what do the ‘Percent’ of the 1991, 1996 and 2000 starting salary distribution graphs’ vertical axes mean? If it is ‘Percent of Reported Salaries’ as the vertical axis of the 2010 distribution graph, is it mean that in 2010 there was more than 18 percent of American law school graduates got starting annual salary more than $160K? Can you convert the graphs to distribution graphs with ‘Percent of American law school graduates population’ vertical axis and share with us here?