Paul Krugman takes a look at top earnings amongst musicians, and the ‘superstar’ effect – the idea that the vast share of consumer spending on music will go to a very small number of performers, since they can reach very large audiences through recordings and broadcasts (see my previous post here). He writes:
What makes this an interesting story for music is that what technology gave, it is now taking away: digital, streamed music is hard to monetize, so that artists are forced back on live performance. So you might expect to see some equalizing of incomes taking place.
But the more I look into this, the less I think this story works, at least for music. …
Let me offer two comparisons, one more fun than the other.
The not-fun comparison: How does the concentration of income among financially successful musicians compare with the distribution of income among financially successful Americans in general? We know that top incomes tend to roughly fit a Pareto distribution, in which, say, the 99th percentile is to the 99.9th as the 99.9th is to the 99.99th. The Piketty and Saez data (xls) tell us that in 2013 income at the 99.99th percentile was 4.38 times as high as income at the 99.9th, which in turn was 3.88 times as high as income at the 99th.
Meanwhile, the Billboard rich list has the 4th highest-paid band, Bon Jovi (sigh), making 3.65 times as much as the 40th artist, Carrie Underwood (oh well). Given the fuzziness of these numbers, I’d say that income inequality among financially successful bands looks about the same as inequality among financially successful Americans in general. In fact, it’s kind of startling how undistinctive the business of being a big-money musician seems to be.
So, either many labor markets are driven by superstar effects, or they are not that prevalent anywhere – there is little distinctive about top performers’ earnings relative to other high earners.
But is this inequality in earnings relatively new?
[L]et’s take an example where there are pretty good numbers: Jenny Lind, the famous soprano, who toured America from 1850 to 1852.
Tickets at Lind’s first concert sold for an average of about 6 dollars, which seems to have been more or less typical during the tour. Adjusting for inflation, that’s the equivalent of around $180 today, which isn’t too shabby (a lot of the indie concerts I go to are $15-20, although they also make money on beer). But you also want to bear in mind that real incomes and wages were much lower, so that these were actually huge ticket prices relative to typical incomes.
Overall, Lind was paid about $350,000 for 93 concerts, or a bit less than $4,000 a concert. If we adjust for the rise in GDP per capita since then, this was the equivalent of around $2 million a concert today. In other words, to a first approximation Jenny Lind = Taylor Swift. And this was in an era not only without recordings, but without amplification, so that the size of audiences was limited by the acoustics of the halls and the performer’s voice projection.
What all this suggests to me, at least, is that the economics of being a financially successful musician aren’t that different from success in other walks of life, and haven’t changed that much over the long run despite huge changes in technology and tastes. Basically, musicians are just like bankers, except for the business about saving our souls versus destroying them.
Have at it, readers…
To draw large historical conclusions based on the income of one 19th century singer is Paul Krugman the journalist, not Paul Krugman the scientist.
On the other hand, it seems likely that the music industry indeed follows the Pareto principle: in societies with an unmitigated capitalism, 20% of the people will own 80% of the wealth. (The champions of raw capitalism suggest this is also a law found in nature.)
The social democracies of Europe intervene to limit the Pareto curve and create more income equality. Governments spend about 50% of the GDP to redistribute wealth. The arts benefit enormously. We thus see that Germany, as just one example of about 30 European countries, has 83 full time opera houses, while the USA has about 6 genuinely functional houses for four times the population – or about 23 times less per capita. Instead of having a few houses in a handful of financial centers where wealthy donors live like NYC, Chicago, and San Francisco, culture is evenly distributed around the country. Through humanistic concepts of society, the Pareto curve is undone to at least a partial extent.
There is also a more even distribution in income for European orchestra musicians. In the USA, the average income for musicians in regional orchestras is $13,000 per year, while musicians in the top 7 or 8 make over ten times that amount. In Germany, almost every orchestra is owned and operated by state or municipal governments. Their incomes are controlled by a general contract with the musician’s union that covers all of Germany’s orchestras, something like a graduated civil service contract. The average income distribution for orchestra musicians is closer to 3 to 1 than over 10 to 1 found in the States – though I haven’t calculated the exact numbers.
Individual contracts for musicians are also forbidden in Germany. Everyone gets their orchestra’s contractually stipulated sums. In the USA, each musician can bargain. The first trumpet in Philly makes $300,000 per year, 23 times the average income for regional musicians. Europeans forbid this aggregation of wealth in top orchestras, and yet their top orchestras are as good (and in some cases better) than top American orchestras.
The same applies to administrators. Europeans would think one was joking if they mentioned that the CEO of the LA Phil makes $1.8 million per year – 138 times the average income of regional musicians. The salaries of administrators for top cultural institutions are not even a third as high.
Europe has not been able to control the salaries of star conductors, since their contracts are controlled mostly by agents in NYC, but they have been able to tax their European incomes at about 50%. This has not stemmed the desire of star conductors to work with top European orchestras. In fact, due to greater cultural activity, most of their incomes come from Europe in spite of the tax laws.
Of course, we will see no discussion of this in the NY Times. The Wall Street Masters of the Universe would be displeased.
Thank you for your comments. A few thoughts:
You are right that this is Krugman, whom I respect immensely, applying some economics off-the-cuff. But it is interesting speculation that Pareto distribution in wages holds about as well for performing artists as for the top of the general population of high income earners. I am unfamiliar with any *theory* that predicts a Pareto distribution (maybe you are right that some have claimed ‘natural law’ properties) – so far as I know this is just an observation that the data fits this distribution, but with no model that would predict such a result (I am happy to stand corrected on this).
The main difference between the US income distribution and those in other wealthy countries is not so much the market distribution of income, but rather the post-tax and post-government spending distribution. Countries other than the US have (slightly) more progressive taxes, but the big impact is on the spending side, on the distribution of spending on education, health care, and income maintenance.
We part ways, however, on the leap you make from (1) social democracies in Europe do more to redistribute wealth (true), and (2) they spend much more on opera (also true), and (3) that these are linked (false).
Public spending on opera houses and opera productions does not constitute a redistribution of income from rich to poor. Taxes are slightly progressive, but consumption of opera is heavily skewed. We can casually observe more middle-class people going to opera in Europe than in the US, but it remains predominantly the higher-educated and higher-income who attend. Were the US to invest more in funding opera production, and were it to invest more in arts education, it would only slightly dent this fact. Nor is it clear at all that it would be a wise priority, were increased public funding of the arts and arts education to come available in the US, that opera appreciation and attendance ought to be a focus and a metric of success.
I enjoy opera, and would vote in favor of some public support. But that it represents ‘progressive’ policy is not the reason. It doesn’t.
Thanks for these interesting ideas. Pareto distribution is is used in several fields (including social, scientific, and geophysical) to determine the probability of distribution. Even insurance companies use it. After discovering that 20% of the people in Italy owned 80% of the land, Pareto also noticed that 20% of the pods in his garden contained 80% of the peas. He began to notice this pattern of distribution in other aspects of nature and developed his principle.
Microsoft found that by correcting the top 20% of its most reported bugs, 80% of the errors and crashes were prevented. This 20/80 ratio seems to have some sort of basis in natural law, but it’s not a very humanistic way to organize societies.
Should we define government spending as progressive only when it redistributes income from the rich to the poor and/or middle class? I think that is generally true, but that it doesn’t apply in all cases. The definition excludes too many forms of humanistic endeavor that could also be reasonably defined as progressive. Sometimes there’s an overlap between serving higher income brackets and improving life for those in the lower ones. Support for the arts serves better educated people who tend to have higher incomes. It also has two other effects: 1) it reduces ticket prices and increases the demographic of consumption, 2) it supports artists who tend to be in low income brackets. The latter two results are surely progressive. Our definitions need to address these marginal areas.