Working Paper: NBER ID: w13270
Authors: Steven N. Kaplan; Joshua Rauh
Abstract: We consider how much of the top end of the income distribution can be attributed to four sectors -- top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%). Individuals in the Wall Street category comprise at least as high a percentage of the top AGI brackets as non-financial executives of public companies. While the representation of top executives in the top AGI brackets has increased from 1994 to 2004, the representation of Wall Street has likely increased even more. While the groups we study represent a substantial portion of the top income groups, they miss a large number of high-earning individuals. We conclude by considering how our results inform different explanations for the increased skewness at the top end of the distribution. We argue the evidence is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction.
Keywords: income distribution; top incomes; executive compensation; financial services; income inequality
JEL Codes: G24; G3; H24; J3; J33; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| theories of superstars, skill-biased technological change, and greater scale (D29) | rise in top incomes (D31) |
| poor corporate governance or social norms (G38) | income inequality (D31) |
| top executives (M12) | income inequality (D31) |
| financial sector employees (G29) | income inequality (D31) |
| lawyers (L84) | income inequality (D31) |
| professional athletes (Z22) | income inequality (D31) |
| hedge fund managers (G23) | income inequality (D31) |
| private equity professionals (G24) | income inequality (D31) |
| top executives (M12) | representation in top AGI brackets (C70) |
| Wall Street professionals (G24) | representation in top AGI brackets (C70) |