Income Inequality Explained by The Superstar Effect: Why The Best Player Earns More!

Income inequality remains one of the world’s biggest debates, where the rich are normally portrayed as bad people by the middle class yet everyone wants money, but its dynamics are so fascinating especially explaining it by means of the Superstar Effect. The Superstar Effect is a theory, by an economist Sherwin Rosen that explains why some people reap so many more rewards than their peers who are only slightly less talented.

Sherwin Rosen argued that technological changes would allow the best performers in a given field to serve a bigger market and thus reap a greater share of its revenue; this would further reduce the spoils available to the less gifted in the business. Such income inequality amongst peers can be simply explained by human behaviour, for instance If I only need one product, I might as well get the best, if the prices are the same. 

Source: Gentleman’s Gazette

In emerging economies, fast economic growth increases inequality as some workers profit from new opportunities and others do not. Inequality spurs economic growth by providing incentives for people to accumulate human capital and become more productive. It pulls the best and brightest into the most lucrative lines of work, where the most profitable companies hire them.

Conversely, the best players target superstar organisations, as they are not only industry leaders, but everyone associated with that organisation makes relatively a lot of money while the rest gets left behind. This perpetuates both virtuous and vicious cycles and explains why there is inequality in almost every aspect of life.

On the other hand, inequality has been found to turn people off, for instance an experiment has found that winner-take-all games tend to elicit much less player effort — and more cheating — than those in which rewards are distributed more smoothly according to performance. Though, it’s important to note that the superstar effect is not the sole cause of the stagnant incomes of regular Joes.

The point is, to make it in winner-takes-all economy you really must emerge as a star as soon as possible.

The question is how does one hedge the superstar economy?

The noble advice would be to constantly accumulate human capital. However Cal Newport the author of How To Be A High School Superstar has a unconventional ideology on becoming competitive. Newport states that being the best in a field makes you disproportionately impressive to the outside world -This effect holds even if the field is not crowded, competitive, or well-known.

Therefore in a world where everyone is competing in the same domain, find your own uncontested space and seek to become the best at it. We’re wired to be disproportionately impressed with someone who is the best at what they do. This effect, however, is blind to the competitiveness of the pursuit. Thus, if you can’t be the best, change the category in which you are judged.

2 Responses

  1. 바카라 says:

    Hi! This is kind of off topic but I need some advice from an established
    blog. Is it difficult to set up your own blog? I’m
    not very techincal but I can figure things out pretty fast.
    I’m thinking about making my own but I’m not sure where to begin.
    Do you have any tips or suggestions? Many thanks https://woori88.com

  2. Way cool! Some extremely valid points! I appreciate you penning this
    post plus the rest of the website is very good. http://kadenceorlando.com/

Leave a Reply

Your email address will not be published. Required fields are marked *

Weekly AlertsKnow Whats The Latest Article!