Technical change and superstar effects: Evidence from the rollout of television

Posted

January 2024

Felix Koenig

Research Paper

What is this research about and why did you do it?

The research studies the rise of “superstar earners” among entertainers. A handful of entertainers earn extremely high salaries, but most entertainers have relatively modest. My goal of this study is to understand why and when these types of “winner-take-all” markets happen. I got interested in this topic because entertainers are the poster child of “winner take all” markets. There is a bigger debate about why so many labour markets appear to be moving closer to “winner take all” settings, where a small share of top earners earns a large share of the total income. Entertainment offers a neat laboratory to assess a leading explanation: the rise of technologies that expand the market scale that star workers can reach.

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How did you answer this question?

The study looks at the rise of television, which sharply increased the audience reach of many entertainers. Exposure to the launch of television varied across local areas in the US since stations were only slowly rolled out. The launch of a station impacted local entertainers since initial broadcast stations frequently broadcasted locally produced content. The study compares top earnings among local entertainers in areas that have vs. ones that do not have television in differences in design differences. The roll-out of television was unexpectedly interrupted for several years in the late 1940s.This creates a powerful “natural experiment” that allowed me to compare entertainers in areas that got lucky and received TV just before the rollout stopped to ones that were stated to receive TV next but did not.

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What did you find?

The launch of television led to the rise of superstar pay for entertainers. The probability that entertainers could reach the top income percentile roughly doubled when television started in the area. The rise of star entertainers was accompanied by a smaller increase in “backup stars,” who also earned extremely high but slightly lower incomes than lead superstars. We do not observe such effects in places that were slated for TV but missed out, and the effects disappeared as soon as national TV production replaced local production in the mid-1950s, adding confidence that we are indeed picking up the impact of local TV filming. While TV created local stars, it had an adverse impact for average entertainers. Opportunities to earn an upper-middle-class wage as an entertainer became scarce. The income distribution started to polarize, with a few highly renumerated stars, a hollowed-out middle, and a larger low-pay sector. Overall, employment in entertainment contracted as consumers shifted from traditional local entertainment to watching the stars on television.

Rising and falling stars - The chart above shows the impact of the rollout of local TV stations (blue circles) on the share of local entertainers in the top percentile of the US wage distribution. Locations with stations that were blocked during the rollout or "frozen stations" (red diamonds), and placebo occupations (yellow triangles), which considered occupations unrelated to entertainment, saw no impacts over the rollout.

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What implications does this have for the study (research and teaching) of wealth concentration or economic inequality?

The study finds that new technologies can contribute significantly to income concentration among a few top earners. The proliferation of television transformed entertainment into a "winner take all market," concentrating income among a few. This episode prompts one to think of other "scale-related" technologies and their potential implications for the rise of incomes within the upper echelons of the income distribution.

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What are the next steps in your agenda?

Follow-on work continues to explore forces that drive changes in the income distribution (technological and otherwise). For example, a related piece of mine discusses the important role of migration for the top income shares in a small open economy like the UK.

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