�Jennifer Oldham

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emergency funds within two years.

The unenviable task of fixing this mess rests with Walker, a 65-year-old former carpenter who won the governor’s office by about 6,000 votes in 2014 as an independent after leaving the Republican Party. Walker came in with big plans that included expanding Medicaid and building a natural gas pipeline, all without raising taxes. He’s since had to switch to a proposal that rewrites the social compact at the heart of Alaska since it achieved statehood in 1959: Its 738,000 residents enjoy the country’s lowest tax burden and highest per capita rate of state spending.

Walker is pushing lawmakers to impose an income tax for the first time in 35 years. He wants to double the gasoline tax and slash the generous subsidies that energy companies get. He’s also proposing

going after the earnings of the $53 billion Alaska Permanent Fund. Established in 1976 by a constitutional amendment, the fund collects a quarter of the state’s oil royalties and each year redistributes a portion of the earnings from its investments to Alaskans. Last year every man, woman, and child got a check for $2,072. Walker wants to cut that in half. The whole idea of the Permanent Fund was that it would be used to fund government when the oil fields ran dry. Lawmakers can’t touch the principal. But its investment earnings are fair game.

To sell his plan to the state’s famously independent voters, Walker has begun an extensive roadshow. Highways reach only about a third of Alaska’s 570,000 square miles, so he flies—on Black Hawk helicopters, on prop planes, in coach on commercial jets. (He likes the middle seat.) He knows his plan has political risks, but he doesn’t care. “If the price I pay is to end my political future, that’s fine,” he says as the plane approaches Fairbanks two hours later. “That’s a small price to pay to fix Alaska.”

Polls show a majority of Alaskans favor his plan, which seeks to reduce the state’s dependence on oil to 20 percent of general fund revenue within two years. At a town hall hosted by regional mayors, one of five events Walker attends in Fairbanks that day, several audience members tell him not to cut their dividend checks, since they rely on them to defray high heating and grocery bills. Others say they’d forgo the payment to save the economy. “Every other state in the union pays for their government,” a supporter tells Walker during a Q&A session. “We’ve had 40 years of a free lunch.”

The governor’s biggest task is persuading Republicans who control the Alaska legislature to go along with him. The GOP majority has refused to debate many of the 18 bills he introduced in January. Leaders in Alaska’s House and Senate insist oil prices will rise—although they can’t say by how much. Walker proposed tapping the Permanent Fund’s investment earnings to raise $3.3 billion of additional revenue each year. Republicans countered with a similar measure that would draw $2.8 billion a year from the fund’s earnings. Neither plan would entirely close the budget gap this year.

This spring the legislature has been wrestling over whether to raise taxes on big oil producers and how quickly to scale back subsidies to smaller ones. The current system is clearly unaffordable. The oil tax credit program is set to pay out $775 million in subsidies to small oil and gas companies in the next fiscal year, more than the state is forecast to collect in total oil production taxes. In March, Republicans proposed raising $100 million by trimming energy subsidies; Walker wants to raise $500 million by reducing credits for smaller oil and gas companies and raising production taxes to 5 percent from 4 percent. As of early May, they’re still a few hundred million dollars apart. The state constitution gives lawmakers until May 18 to finalize a budget.

Whichever plan Walker and the lawmakers adopt, Alaska is in for tough times. Already, people are leaving. The state lost more residents than any other in 2015. “We are sort of damned if we do, damned if we don’t,” says Gunnar Knapp, an economist at the University of Alaska at Anchorage who’s advised Walker. Cutting spending or reducing the dividend would take money out of a weak economy, he says. But using the state’s savings to plug the deficit only delays the inevitable. “We face a tradeoff, and it’s not like we have a lot of time,” Knapp says. “The hurt is going to come anyway.”

To plug Alaska’s $4 billion budget deficit, Governor Walker wants to raise taxes and cut subsidies to the state’s oil companies.

obviously missing something.’ ” The work of Feroli and his team impresses Jason Furman, chairman of the president’s Council of Economic Advisers. “I think it’s great there’s more of a debate about concentration and its impacts on the economy,” he says. Feroli and fellow economists tapped new data that Furman’s group generated for an “issue brief” last month. From 1997 to 2012, the report said, the 50 largest companies in many sectors sharply increased their share of industry revenue.

Feroli’s team lined up those numbers against new data from the Department of Commerce’s Economic Census, which shows the value added by each industry—i.e., the amount of money the sector receives for its products or services minus the cost of inputs such as parts, raw materials, and energy. The value that the sector adds is split among workers (wages and salaries), government (taxes), and “surplus,” which includes profit for shareholders. The share workers got tended to decline in industries where there’s more consolidation.

One vivid example is in transportation and warehousing. The 50 biggest companies increased their share of revenue by more than 11 percentage points from 1997 to 2012; yet workers’ share of the value added by the sector fell 7.6 percentage points from the 1998-99 average to the 2013-14 average. The sector includes both railroads and airlines, industries where a series of blockbuster mergers concentrated ownership at the top. Lee Klaskow, who follows railroads for Bloomberg Intelligence, says they have become “extremely profitable.” Workers tend to be well-paid, but there are fewer of them, reducing labor’s share of income, he says.

At the other end of the concentration scale, there was a slight decline from 1997 to 2012 in big companies’ domination of the health-care and social assistance sector. There was a corresponding increase in the share of the value added in the industry going to labor, fitting the pattern Feroli noted.

What accounts for the pattern? Feroli doubts the theory that industries with greater concentration can pay lower wages because fewer companies are competing for talent. If companies in one sector tried to underpay, their workers would switch to other sectors over time, he says.

A more likely explanation, Feroli says, is that industries with more concentrated ownership can charge higher prices. They pay out their extra profits to shareholders, or to the government in taxes, but not to workers. The question is why the companies have felt so little pressure to share the bounty with their workers. Economists cite the decline in unions and employees’ fears, stemming from the last recession, that they could be replaced if they complain. One hopeful sign for workers: The share of national income going to wages and salaries has rebounded since 2012, erasing about 30 percent of its post-1997 decline. �Peter Coy

Change in industry concentration from 1997 to 2012; change in employees’ share of profits from 1998-99 to 2013-14

Health care and social assistance The share of business accounted for by the top 50 companies fell percentage points, while the share of the sector’s income paid to employees climbed percentage points.

Transportation and warehousing The share of business accounted for by the top 50 companies rose percentage points, while the share of the sector’s income paid to employees fell percentage points. Biggest drop of any industry in the study The bottom line Companies that dominate industries have lots of pricing power but come under little pressure to give workers hefty raises.