Rent, Rent‐Seeking, and Social Inequality
Title
Rent, Rent‐Seeking, and Social Inequality
Author
Bird, Beth Red
Grusky, David B.
Research Area
Social Institutions
Topic
Work and the Economy
Abstract
The compensation paid out to workers reflects (i) the value of their contribution to their firm or organization and (ii) a possible premium because of restrictions on competition. The latter restrictions, which may take the form of corruption or monopolies that preclude labor from freely flowing throughout the economy, allow for various types of rent to be extracted. This essay addresses the way in which rents may arise, the sectors of the labor market that are gaining new opportunities to extract rent, and the sectors of the labor market that are losing the capacity to extract rent. Although it is typically argued that all forms of rent are gradually withering away, the available evidence suggests, to the contrary, that rent destruction is mainly occurring at the bottom of the class structure. At the top of the class structure, new opportunities to collect rent appear to be emerging, opportunities that raise earnings among the already privileged and thus increase income inequality. The foregoing characterization of the evidence, although not without support, is necessarily controversial because of intrinsic difficulties in distinguishing the true marginal contribution of workers from returns that are attributable to market failure.