As a law professor, I earn a lot less than my law school classmates who graduated with similar records, and a small fraction of the income earned by those at the very top. But I am compensated in other ways. In the loveliest line of the wonderful song “If I Were a Rich Man,” from Fiddler on the Roof, Tevye says that the “sweetest thing of all” from becoming wealthy would be the leisure gained to “discuss the Holy Books with the learned men seven hours a day.” The secular equivalent is what I get paid to do.
My situation illustrates what economists call compensating differentials. I get less income from my job because I get more enjoyment than I would in a job requiring similar skills and education. Thus, as Tyler Cowen and Alex Tabarrock note in a recent video, the market would pay a sewer inspector a lot more than a lifeguard even if it had to attract equally skilled job takers. Similarly, if a job creates risks of death, injury or ill health, it will have to pay more to workers to compensate.
This simple observation suggests that focusing only on earned income from employment can provide a misleading picture of any growth in inequality.