Testing the “superstar hypothesis”

The historic rollout of television in the United States provides a natural experiment in scale-related technological change.

By Tyler Smith of the AEA. It is not very long. But it is worth reading the whole thing. Excerpts:

"Technological advancement has brought enormous wealth and prosperity to humanity. But some technologies widen the gap between the haves and the have-nots, according to a paper in the American Economic Review: Insights. 

Author Felix Koenig found that so-called “scale-related technical change” in US television markets in the middle of the 20th century significantly boosted entertainer wages at the top of the distribution at the expense of those at the bottom.

The findings are some of the first empirical confirmation of economists' standard tool for modeling “superstar” dynamics."

"Koenig analyzed what happened to the wages of entertainers in the United States when local television stations became popular in the 40s and 50s.

Before television, an entertainer's audience was limited by the number of people that could fit in an auditorium or stadium. But local TV made it possible to reach significantly more people, creating local superstars.

However, television didn’t spread to everyone immediately like today’s new platforms."

"the launch of a TV station shifted more income to the entertainers who were already earning the most, with smaller increases at slightly lower income levels. And the further down in the income scale, the faster the gains disappeared. The impact could even be seen in the overall US wage distribution: the share of entertainers in the top 1 percent doubled."

Related posts:

How changing technology has affected inequality since 1980 (2019). Excerpt:

"Inspired by economist Sherwin Rosen’s landmark 1981 article, “The Economics of Superstars,” the three economists suggest that STS workers (Skilled tradable services) have become earnings superstars because, as Rosen showed, individuals with great talent can gain access to larger markets and incomes as communication costs drop. Competitors in that same market whose talent is just slightly less (or less popular) will lose market share to the star. Lower-skilled rivals make much less money than superstars like Serena Williams and Beyoncé, whose talents are shared instantly across world stages."

How Technology Has Changed The Distribution Of Income Among Musicians (2019). Excerpt:

"Sixty percent of all concert-ticket revenue world-wide went to the top 1% of performers ranked by revenue in 2017, according to an analysis by Alan Krueger, a Princeton University economist. That’s more than double the 26% that the top acts took home in 1982."

"Performers’ royalties—for acts big and small—are generally much smaller on streaming than on records, CDs or download sales, so artists have to turn to concert revenue for more of their income. And it’s only the superstars who have the ability to charge significantly more for tickets than their predecessors did a generation ago. That leaves non-superstar performers competing for a shrinking share of the concert pie." [Interesting point here is not that the technology is putting more money in the pockets of superstars but it means that only the superstars can make money the "old fashioned" way, from live performances]