It was almost a sad sight to see Rupert Murdoch’s son sitting beside the famed newspaper publisher in the televised committee hearings conducted by the British parliament last July.
James seems so out of depth.
Superstar salary he certainly has, but superstar talent?
If the members of the top 1% are there because of connections or political power—rather than by the force of their talent, energy, and motivation—then we should be rightly critical about claims that they merit their fortunes, and question the contribution they make to economic productivity.
Daddy likely got James his first job, daddy likely promoted him, and daddy likely hopes he will be on the top of the Murdoch empire well after he’s gone.
But in a sense the James Murdochs of the world are more common than we might think. In fact the most popular way to find a job is through family and friends. That holds true for all of us, but it is immensely more likely for the kids of the very rich. Look at this picture from a research paper that Patrizio Piraino and I published in the Journal of Labor Economics (available here if you really want all the details).
The bottom line is that about 40% of us have at some point worked for exactly the same firm that at some point also employed our fathers. But if dad’s earnings put him in the top 25% these chances are above average, they start taking off if dad was in the top 5%, and reach the stratosphere for top earners. Almost 7 out of 10 sons of top earning dads had a job with his employer.
All parents want to help their children in whatever way they can. But top earners can do it more than others, and with more consequence: virtually guaranteeing, if not a lifetime of high earnings, at least a great start in life.
Connections matter. And for the top earners this might even be nepotism. This is not a bad thing if parents pass on real skills to their children, skills that might even be specific to particular occupations, industries, or even firms. If this is the case then it makes economic sense to follow in your father’s footsteps.
Wayne Gretzky often talked about the role his father played in developing his skating and stick handling skills. He spent hours and hours with Walter on the backyard rink. But not all top earners got to where they are because of this sort of good nepotism. I somehow doubt that James Murdoch is the Wayne Gretzky of the publishing world.
Bad nepotism promotes people above their abilities by virtue of connections, and it erodes rather than enhances economic productivity.
But there is even a larger cost. If the rich leverage economic power to gain political power they can also skew broader public policy choices—from the tax system to the education system—to the benefit of their offspring. This will surely start eroding the belief that labour markets are fair, and that anyone can aspire to the top.
This is the stuff of another posting in the coming days.