Theories of the distribution of earnings
In: Handbook of Income Distribution
AbstractSeveral empirical regularities motivate most theories of the distribution of labor earnings. Earnings distributions tend to be skewed to the right and display long right tails. Mean earnings always exceed median earnings and the top percentiles of earners account for quite a disproportionate share of total earnings. Mean earnings also differ greatly across groups defined by occupation, education, experience, and other observed traits. With respect to the evolution of the distribution of earnings for a given cohort, initial earnings dispersion is smaller than the dispersion observed in prime working years.We explore several models that address these stylized facts. Stochastic theories examine links between assumptions about the distribution of endowments and implied features of earnings distributions given assumptions about the processes that translate endowments into earnings. Selection models describe how workers choose a career. Because workers select their best option from a menu of possible careers, their allocation decisions tend to generate skewed earnings distributions. Sorting models illustrate this process in an environment where workers learn about their endowments and therefore adjust their allocation decisions over time.Human capital theory demonstrates that earnings dispersion is a prerequisite for significant skill investments. Without earnings dispersion, workers would not willingly make the investments necessary for high-skill jobs. Human capital models illustrate how endowments of wealth and talent influence the investment decisions that generate observed distributions of earnings.Agency models illustrate how wage structures may determine rather than reflect worker productivity. Tournament theory addresses the long right tails of wage distributions within firms. Efficiency wage models address differences in wages across employments that involve different monitoring technologies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
This chapter was published in:
This item is provided by Elsevier in its series Handbook of Income Distribution with number 1-07.
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/bookseriesdescription.cws_home/BS_HE/description
Find related papers by JEL classification:
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.