IDEAS home Printed from
   My bibliography  Save this paper

The Spill-over Effects of Top Income Inequality


  • Morten Olsen

    (IESE Business School)

  • Joshua Gottlieb

    (University of British Columbia)

  • David Hemous

    (University of Zurich)

  • Jeffrey Clemens

    (University of California at San Diego)


Since the 1980s top income inequality within occupations as diverse as bankers, managers, doctors, lawyers and scientists has increased considerably. Such a broad pattern has led the literature to search for a common explanation. In this paper, however, we argue that increases in income inequality originating within a few occupations can spill over"into others creating broader changes in income inequality. In particular, we study an assignment model where generalists with heterogeneous income buy the services of doctors with heterogeneous ability. In equilibrium the highest earning generalists match with the highest quality doctors and increases in income inequality among the generalists feed directly into the income inequality of doctors. We use data from the Decennial Census as well as the American Community Survey from 1980 to 2014 to test our theory. Specifically, we identify occupations for which our consumption-driven theory predicts spill-overs and occupations for which it does not and show that patterns align with the predictions of our model. In particular, using a Bartik-style instrument, we show that an increase in general income inequality causes higher income inequality for doctors, dentists and real estate agents; and in fact accounts for most of the increase of inequality in these occupations.

Suggested Citation

  • Morten Olsen & Joshua Gottlieb & David Hemous & Jeffrey Clemens, 2017. "The Spill-over Effects of Top Income Inequality," 2017 Meeting Papers 332, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:332

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Serdar Ozkan & Jae Song & Fatih Karahan & Fatih Guvenen, 2015. "What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk?," 2015 Meeting Papers 1183, Society for Economic Dynamics.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 49-100.
    3. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2011. "Top Incomes in the Long Run of History," Journal of Economic Literature, American Economic Association, vol. 49(1), pages 3-71, March.
    4. 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.
    5. Steven N. Kaplan & Joshua Rauh, 2013. "It's the Market: The Broad-Based Rise in the Return to Top Talent," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 35-56, Summer.
    6. Thomas Philippon & Ariell Reshef, 2012. "Wages and Human Capital in the U.S. Finance Industry: 1909--2006," The Quarterly Journal of Economics, Oxford University Press, vol. 127(4), pages 1551-1609.
    7. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
    8. Enrico Moretti, 2013. "Real Wage Inequality," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 65-103, January.
    9. Florian Scheuer & Iván Werning, 2017. "The Taxation of Superstars," The Quarterly Journal of Economics, Oxford University Press, vol. 132(1), pages 211-270.
    10. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, Oxford University Press, vol. 118(1), pages 1-41.
    11. Aghion, Philippe & Akcigit, Ufuk & Bergeaud, Antonin & Blundell, Richard William & Hémous, David, 2015. "Innovation and Top Income Inequality," CEPR Discussion Papers 10659, C.E.P.R. Discussion Papers.
    12. Xavier Gabaix & Jean‐Michel Lasry & Pierre‐Louis Lions & Benjamin Moll, 2016. "The Dynamics of Inequality," Econometrica, Econometric Society, vol. 84, pages 2071-2111, November.
    13. Garicano, Luis & Hubbard, Thomas N., 2012. "Learning about the nature of production from equilibrium assignment patterns," Journal of Economic Behavior & Organization, Elsevier, vol. 84(1), pages 136-153.
    14. Francois Geerolf, 2015. "A Static and Microfounded Theory of Zipf's Law for Firms and of the Top Labor Income Distribution," 2015 Meeting Papers 516, Society for Economic Dynamics.
    15. Bohdan Kukharskyy, 2012. "Trade, Superstars, and Welfare," Working Papers 120, Bavarian Graduate Program in Economics (BGPE).
    16. Määttänen, Niku & Terviö, Marko, 2014. "Income distribution and housing prices: An assignment model approach," Journal of Economic Theory, Elsevier, vol. 151(C), pages 381-410.
    17. Thomas Miceli & Katherine Pancak & C. Sirmans, 2007. "Is the Compensation Model for Real Estate Brokers Obsolete?," The Journal of Real Estate Finance and Economics, Springer, vol. 35(1), pages 7-22, July.
    18. Gersbach, Hans & Schmutzler, Armin, 2014. "Does globalization create superstars? A simple theory of managerial wages," European Economic Review, Elsevier, vol. 71(C), pages 34-51.
    19. Charles I. Jones & Jihee Kim, 2014. "A Schumpeterian Model of Top Income Inequality," NBER Working Papers 20637, National Bureau of Economic Research, Inc.
    20. Angus Deaton, 1998. "Getting Prices Right: What Should Be Done?," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 37-46, Winter.
    21. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Facundo Albornoz & Antonio Cabrales & Esther Hauk, 2017. "Occupational Choice with Endogenous Spillovers," Working Papers 972, Barcelona Graduate School of Economics.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed017:332. See general 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: (Christian Zimmermann). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.