Superstars and "talent"

Top bosses and film stars get multi-million pound salaries because talent is scarce. Everyone knows this. Which is a shame, because it's bull, as this fantastic paper by Marko Tervio explains.
Start from the premise that talent is initially unknown, and can only be revealed by working with expensive equipment. So, for example, we can only find out if a manager is any good if he's in charge of a big venture, or if an actor has box office appeal if he's in a mega-costly film. It is, therefore, very expensive to learn who's got talent and who hasn't.
What's more, people with talent cannot offer to share this cost with employers, either because of lack of cash or risk aversion: people don't pay for the chance to become bosses or film stars.
In these conditions, what's scarce isn't talent, but revealed talent. There might be loads of people with the ability to be film stars or bosses, but only a handful get the chance to show what they can do. Marg Helgenberger gets big money not (just) because she's a better, more popular or more beautiful actress than others, but because she's a proven quantity.
This has three consequences:
1. The industry employs lots of mediocrities on good money - people just above the threshold of acceptable competence. Employers prefer these to untried but potentially better workers because the risk of a single failure - the box office flop of a $100m film, or the failure of a large company - far exceeds the possible benefit of finding lots of people a little better than the barely competent.
2. Output is inefficiently low, and prices high. This follows from the industry being staffed by the barely competent rather than the brilliant.
3. People who have proved that they are genuinely brilliant earn huge salaries as economic rent.
Tervio illustrates this with Hollywood films. Compare films today with those made by the studio system of the 1930s and 40s.
Today, there's vast inequality among film actors, as there's only a handful of proven box-office stars, and the quality of films is indifferent.
By contrast, the studio system allowed potential stars to share the costs of revealing their talent with producers, by entering long-term contracts which gave low pay even to stars; the lower cost of making films then also helped. This allowed for many more great films to be made, as more great actors could enter the industry, but with less inequality among the stars.
In this sense, superstar salaries arise not because talent has become scarcer, but because it's become harder to reveal talent.
In other industries, however, the opposite trend exists. Clive reminds us that in the 1980s a mere economics writer got a flash Beemer from the Indy. This would be unheard-of today. This is because back in the 80s, it was hard to reveal a "talent" for writing on economics. Today, any idiot can do this (see here, passim), so revealed talent has become more abundant.
(For Katherine).

Comments

[Joe Otten]

A very good point, regarding top bosses at least, but surely actors are bad example.

Whether you can sing or act or play football well is relatively cheap to reveal.

Whether a band can be trusted to stay together and keep working rather than sulk or split up over artistic differences is difficult to reveal, and therefore explains high rock star income, and also a preference among record companies for avoiding artistic differences by avoiding artistic content altogether.

But actors can get small parts in big films or big parts in small films, they can audition, this is fairly cheap. Footballers can play for minor teams.

Isn't the football club much like the studio. Does it really make a difference?

[Collins]

I sincerely concurr, i for one believe that i am repositance of talent,but much of it isnt realized ;not that there isnt effort...but that there is limited exposure. Life has its own inherent inequities ,the challenge remains is how to circumvent them!

[Ian Bertram]

The proliferation of internships paying nothing is a clear demonstration that the media industry does make you pay to reveal your talent.

[Recusant]

Some talent is simply more obvious than others, cf: Menuhin; Horowitz; Pavarotti; Velazquez; Shakespeare; Austen, et al. Their talent is directly discernible: a business executive's isn't.

[dearieme]

Performers have always believed that, haven't they? That all they need is one good chance to prove themselves. Hence the Casting Couch. Hence the Talent Show.

[james c]

In the case of Hollywood stars, your argument seems wrong to me.

One could argue, as you do, that all Hollywood does is simply to reveal talent-it is much more plausible to argue that they create stars, albeit from those with the right raw material.

There are of,course, one-offs, but the industry is built on turning young hopefuls into formulaic products.

The stars then derive an economic rent, because the film-viewing public likes to watch films with actors that it knows.

Your comments about the collapse of the studio system also do not seem convincing to me. It is natural that the studio system should emerge at the start of the industry, when there were no establsished stars. Once the stars had been created, they would inevitably demand a better deal and the system would collapse.

Exactly the same thing happened with the (popular) music business where the talent gets a much better deal than in the early days.

[Larry Teabag]

The problem with this analysis is that you conflate "box-office appeal" with "talent" for actors.

In case of managers the two analogs boil down to the same thing.

But for actors, they do not. Keanu Reeves springs to mind as an example.

[Roar]

Talent is not really necessary in the entertainment world. So long as the masses are kept distracted by the mediocre celebrities, they are rewarded.

Not everyone can be allowed to join the ranks of celebrity...there has to be a filter...this filter makes mediocre people into celebrities with mass appeal.

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You can count on the band to stay together and continue to work rather than sulking Than or split up over creative differences are difficult to detect, and explains the great rock star of income and also a favorite among record companies, artistic differences avoid by avoiding artistic content completely.

[Jason]

Very good article, thanks for sharing