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In law and finance (and probably everywhere) there are winner-takes-all scenarios where employing someone whose skill is 10% greater than your “opponents” gives

by jl6 7y ago

In law and finance (and probably everywhere) there are winner-takes-all scenarios where employing someone whose skill is 10% greater than your “opponents” gives far more than a 10% advantage, and hence the marginally more skilled people can command disproportionately higher salaries.

pjc50 7y ago
That's relatively tame: see football, where Lionel Messi earns about $100m. Something similar applies to musicians. This kind of "tournament wages" causes a lot of really high income inequality situations. CEOs argue that their wages are the result of a similar tournament. The example of WeWork suggests that it may in some cases just be a better position for looting money from the investors and staff.
zozbot234 7y ago
Yup. Nobel laureate Michael Kremer points out "O-Ring" industries as another source of non-linearity - where you need N performers to be high-ability in order to achieve some outsized level of productivity, but having even a small percentage of them fail means forfeiting all gains. This creates unavoidable "superstar" effects within these industries.
gwern 7y ago
Don't forget the https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development https://en.wikipedia.org/wiki/O-ring_theory_of_economic_deve... - Kremer, incidentally, won the Nobel this year (albeit not for the O-ring model). As Shockley and innumerable analyses have shown, 'ability' defined very narrowly may be normally distributed, but because tasks draw on many abilities and steps can multiply rather than add ('there is nothing so useless as doing well that which should not be done at all'), it's very easy for a bunch of normally-distributed abilities to yield a log-normal distribution of outputs, in which case there is massive inequality in final results: https://www.gwern.net/docs/iq/1957-shockley.pdf https://www.gwern.net/docs/iq/1957-shockley.pdf
travisoneill1 7y ago
Also in finance the highest paying skill isn't what most people think of as "financial skill", but rather skill at raising money from investors. The article really falls flat on how it measures ability.

by jl6 7y ago

pjc50 7y ago

That's relatively tame: see football, where Lionel Messi earns about $100m. Something similar applies to musicians. This kind of "tournament wages" causes a lot of really high income inequality situations. CEOs argue that their wages are the result of a similar tournament. The example of WeWork suggests that it may in some cases just be a better position for looting money from the investors and staff.

zozbot234 7y ago

Yup. Nobel laureate Michael Kremer points out "O-Ring" industries as another source of non-linearity - where you need N performers to be high-ability in order to achieve some outsized level of productivity, but having even a small percentage of them fail means forfeiting all gains. This creates unavoidable "superstar" effects within these industries.

gwern 7y ago

Don't forget the https://en.wikipedia.org/wiki/O-ring_theory_of_economic_development https://en.wikipedia.org/wiki/O-ring_theory_of_economic_deve... - Kremer, incidentally, won the Nobel this year (albeit not for the O-ring model). As Shockley and innumerable analyses have shown, 'ability' defined very narrowly may be normally distributed, but because tasks draw on many abilities and steps can multiply rather than add ('there is nothing so useless as doing well that which should not be done at all'), it's very easy for a bunch of normally-distributed abilities to yield a log-normal distribution of outputs, in which case there is massive inequality in final results: https://www.gwern.net/docs/iq/1957-shockley.pdf https://www.gwern.net/docs/iq/1957-shockley.pdf

travisoneill1 7y ago

Also in finance the highest paying skill isn't what most people think of as "financial skill", but rather skill at raising money from investors. The article really falls flat on how it measures ability.