Thoma on Varian on Galbraith and Hale

Mark Thoma reads Hal Varian who reads Galbraith and Hale:

Economist's View: Hal Varian on Inequality: The Right Place at the Right Time: Hal Varian examines of the driving forces behind changes in inequality in the late 1990s:

It is widely recognized that income inequality increased in the 1990s, but nobody knows quite why. Despite the lack of hard evidence, there are plenty of theories.... Two University of Texas researchers, James K. Galbraith and Travis Hale, added an interesting twist to this debate in a paper, "Income Distribution and the Information Technology Bubble."

According to Mr. Galbraith and Mr. Hale, much of the increase in income inequality in the late 1990s resulted from large income changes in just a handful of locations around the country... areas that were heavily involved in the information technology boom....

Santa Clara, San Mateo, San Francisco (all associated with Silicon Valley) and King County, Wash. (home of Microsoft).... If the per capita income in just these four counties had grown at the same rate as the average in the United States, income inequality across counties would have changed little in the late 1990s. In other words, only four counties drove most of the change across the 3,100 counties.

The findings by Mr. Galbraith and Mr. Hale offer something to all sides in the debate. Perhaps options grants and initial public stock offerings had a lot to do with income inequality. Changing compensation patterns for technology-related skills could also be significant. But the biggest point that I take away is a simple one: there's no substitute for being in the right place at the right time.