In my ECONS102 class, we talk about why earnings differ between different jobs. However, even within jobs that are ostensibly the same, workers may have different wages. Putting aside the gender wage gap and discrimination, two reasons for differences in wages are superstar effects and tournament effects.
Superstar effects, described by Sherwin Rosen in the 1980s [*], occur because top performers are paid (in part) based on the amount of value that they generate for their employer. If a top performer generates a lot of value, they will be paid more. This explains much of the rise in earnings over time for top sportspeople or entertainers - as television (and more recently internet) viewership has grown, the value generated by a top sportsperson or entertainer (in terms of the number of viewers they attract) has grown, and their salaries or earnings have grown as a result.
Tournament effects, described by Rosen and Ed Lazear in the 1980s, occur when people are paid a 'prize' for their relative performance (that is, for winning the 'tournament'). The prize may take the form of a bonus, a raise, or a promotion. The point is that each worker only needs to be a little bit better than the second best worker in order to 'win' the tournament.
These effects are nicely illustrated in the case of social media influencers, as described in this article in The Conversation by Natalya Saldanha (RMIT University):
As people consume less traditional media and spend more time on social platforms, advertisers are increasingly using these influencers to spruik their products. A mega-influencer like Kylie Jenner, with 139 million followers on Instagram, can reportedly charge more than US$1 million for a single promotional post...
So far most of the indications are that the new economics of influencer marketing are not too different to the old economics of marketing.
As in the acting, modelling or music industry, there’s a tiny A-list of superstar influencers making millions. Then there’s a somewhat larger B-list making a handsome living. But the vast bulk of influencers would be better off getting an ordinary job.
In 2018 a professor at the Offenburg University of Applied Sciences in Germany, Mathias Bärtl, published a statistical analysis of YouTube channels, uploads and views over a decade. His results showed that 85% of traffic went to just 3% of channels, and that 96.5% of YouTubers wouldn’t make enough money to reach the US federal poverty line (US$12,140, or about A$17,900).
There are elements of both superstar effects and tournament effects here. If an influencer promoting a product can increase sales, then it makes sense that they will be paid more if they have more followers. So, a superstar with millions of followers will be paid substantially more than one with just hundreds or thousands.
And, influencers are competing for a scarce advertising spend, where successful influencers will attract paid work from many willing advertisers. Being slightly better than the second best influencer is likely to result in a disproportionate number of advertising contracts, increasing their earnings by a lot (and 'winning' the tournament). In contrast, slightly less successful influencers could end up earning less than the poverty line. This probably plays out separately in 'markets' for influencers with a broad appeal, and those whose followers are in a particular niche that advertisers want to target. Interestingly, the tournament effects here are little different to the effects for drug dealers, as Steven Levitt and Stephen Dubner describe in the excellent book Freakonomics (also described in this LA Times article from 2005).
Being a social media influencer isn't going to be a path to riches for the majority of aspiring wannabe Kylie Jenners. The best advice might be to try and exploit a very particular niche audience that advertisers are seeking and one that is not already occupied by one (or many) successful influencers. However, most of these wannabes are going to need a day job.
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[*] This was not a new insight, as Alfred Marshall had made a similar point as early as 1875.
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