The Economics of Superstars

Abstract

IN RECENT years has not felt his gorge rise upon learning the staggeringly high salary of a shortstop, a movie star, an opera singer? A basketball player on a losing team earns $1.2 million; an author sells the paperback rights to his book for $800,000; a television interviewer switches networks and signs a contract calling for her to receive an annual income of just under $2 million. And the gorge continues to rise. The spectacle of people doing work that doesn't always seem overweighted with significance for annual (and, in the case of rock singers, sometimes nightly) sums of money that figure to exceed what you and I may earn in our lifetimes this, as they say nowadays, does not give off good vibes. What's going on here? What we are talking about, of course, is the phenomenon of superstars, wherein relatively small numbers of people earn enormous amounts of money and seem to dominate the fields in which they are engaged. This phenomenon appears to be increasingly important in the modern world certainly, with the breakdown of economic privacy, it is an increasingly visible phenomenon. The very word superstar implies inflation in our most precious currency, language; to be a star would have been sufficient in my youth. Yet we appear to be stuck with the term. As for the phenomenon itself, viewed from the standpoint of an economist, it may not be as puzzling as it at first glimpse seems. The first thing to be said in this connection is that certain economic activities admit extreme concentration of both personal reward and market size among a handful of participants. Every economic activity supports considerable diversity of talent and significant inequality in the personal distribution of rewards. Activities where superstars are found differ from those in which most of us make our livings by supporting much less diversity and much more inequality in the distribution of earnings. The bulk of earnings goes to relatively small numbers of practitioners typically, the few regarded as among the best in their fields. Similar distributions of earnings in the industrial sector would ultimately come to the attention of the Federal Trade Commission or the