Superstar Pay

by Elaine Schwartz    •    Mar 4, 2012    •    776 Views

With Kobe Bryant earning $25 million and the average NBA annual salary at $5 million, still, the NBA pay scale does not seem to trouble us. And, even though our 2009 average household income was $52,229, Jeremy Linn’s $800,000 sounds low.

By contrast, mention the top 1%,  financial “superstars” and Fortune 500 CEOs, and the reaction is not so positive.

Harvard economist Kenneth Rogoff asks why we approve of astronomical salaries for NBA superstars but not for top Wall Street earners or CEOs. Because athletes are role models? But not all are. Global fame? Wall Street names can be known beyond national borders.

Our bottom line: The economics of wages involve demand, supply and very different labor markets.

The Economic Lesson

Taking us to the huge audience that technology facilitates and the aggregate spending power of an affluent society, The Price of Everything explains high salaries. Focusing, on similar ideas, a University of Chicago economist discusses the rationale and math behind superstar salaries. He even compares Luciano Pavarotti to Mrs. Billington, an 1801 superstar Italian opera diva.

An Economic Question: Through a demand and supply graph for a superstar, how might you illustrate a high salary?


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