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The role of entrepreneurship in rising wealth and income inequality

Author

Listed:
  • Malm, Arvid

    () (Royal Institute of Technology (KTH), Department of Industrial Economics and Management, Swedish Entrepreneurship Forum (SEF))

  • Sanandaji, Tino

    () (Centre for Policy Studies (CPS), Research Institute of Industrial Economics (IFN))

Abstract

Thomas Piketty has argued that the rising income share of top earners in the US is driven by the growing incomes of “Supermanagers”, high-level managers and supervisors in large firms. Piketty has further argued that this development is best explained by growing managerial bargaining power in conjunction with lower top marginal tax rates and changing social norms. We argue that Piketty´s claim that 60 percent of the top 0.1 percent earners are “Supermanagers” is mistaken. A closer examination of US tax data shows that these managers primarily tend to be active in closely held corporations, not in large firms. We also use the Survey of Consumer Finances to confirm that self-employed business owners constitute a large share of US top earners. In 2013, 58 percent of the top 0.5 percent earners in the US self-identified as self-employed business owners. This suggests that managerial bargaining power among salaried managers is unlikely to have been the main driving force behind the increase in top incomes. Furthermore, increasing returns to entrepreneurship may be an important yet little-discussed factor for explaining increasing income inequality.

Suggested Citation

  • Malm, Arvid & Sanandaji, Tino, 2015. "The role of entrepreneurship in rising wealth and income inequality," Working Paper Series in Economics and Institutions of Innovation 398, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0398
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    File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp398.pdf
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    References listed on IDEAS

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    1. Henrekson, Magnus & Sanandaji, Tino, 2013. "Small Business Activity Does not Measure Entrepreneurship," Working Paper Series 959, Research Institute of Industrial Economics, revised 26 Jan 2014.
    2. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    3. Charles I. Jones & Jihee Kim, 2018. "A Schumpeterian Model of Top Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 1785-1826.
    4. Thomas Lemieux, 2008. "The changing nature of wage inequality," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(1), pages 21-48, January.
    5. Thomas Piketty & Emmanuel Saez & Stefanie Stantcheva, 2014. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 230-271, February.
    6. Gary Burtless, 1995. "International Trade and the Rise in Earnings Inequality," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 800-816, June.
    7. Kopczuk, Wojciech & Saez, Emmanuel, 2004. "Top Wealth Shares in the United States, 1916-2000: Evidence From Estate Tax Returns," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 445-487, June.
    8. Bruton, Garry D. & Ketchen, David J. & Ireland, R. Duane, 2013. "Entrepreneurship as a solution to poverty," Journal of Business Venturing, Elsevier, vol. 28(6), pages 683-689.
    9. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.),Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
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    Cited by:

    1. Ayse Imrohoroglu & Cagri S. Kumru & Arm Nakornthab, 2018. "Revisiting Tax on Top Income," ANU Working Papers in Economics and Econometrics 2018-660, Australian National University, College of Business and Economics, School of Economics.

    More about this item

    Keywords

    wealth; income distribution; entrepreneurship;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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