IDEAS home Printed from https://ideas.repec.org/p/zbw/capwps/201703.html
   My bibliography  Save this paper

Evidence for a Power Theory of Personal Income Distribution

Author

Listed:
  • Fix, Blair

Abstract

This paper proposes a new ‘power theory’ of personal income distribution. Contrary to the standard assumption that income is proportional to productivity, I hypothesize that income is most strongly determined by social power, as indicated by one’s position within an institutional hierarchy. While many theorists have proposed a connection between personal income and power, this paper is the first to quantify this relation. I propose that power can be quantified in terms of the number of subordinates below one’s position in a hierarchy. Using this definition, I find that relative income within firms scales strongly with hierarchical power. I also find that hierarchical power has a stronger effect on income than any other factor for which data is available. I conclude that this is evidence for a power theory of personal income distribution.

Suggested Citation

  • Fix, Blair, 2017. "Evidence for a Power Theory of Personal Income Distribution," Working Papers on Capital as Power 2017/03, Capital As Power - Toward a New Cosmology of Capitalism.
  • Handle: RePEc:zbw:capwps:201703
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/162938/1/20170700_wpcasp.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daniel Richter & Rainer Grün & Renaud Joannes-Boyau & Teresa E. Steele & Fethi Amani & Mathieu Rué & Paul Fernandes & Jean-Paul Raynal & Denis Geraads & Abdelouahed Ben-Ncer & Jean-Jacques Hublin & Sh, 2017. "The age of the hominin fossils from Jebel Irhoud, Morocco, and the origins of the Middle Stone Age," Nature, Nature, vol. 546(7657), pages 293-296, June.
    2. Avi J. Cohen, 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 199-214, Winter.
    3. Fredrik Heyman, 2005. "Pay inequality and firm performance: evidence from matched employer-employee data," Applied Economics, Taylor & Francis Journals, vol. 37(11), pages 1313-1327.
    4. Facundo Alvaredo & Anthony Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1% in International and Historical Perspective," Post-Print halshs-00847231, HAL.
    5. Thomas J. Dohmen & Ben Kriechel & Gerard A. Pfann, 2004. "Monkey bars and ladders: The importance of lateral and vertical job mobility in internal labor market careers," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(2), pages 193-228, June.
    6. Susana Iranzo & Fabiano Schivardi & Elisa Tosetti, 2008. "Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 247-285, April.
    7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," NBER Chapters, in: Investment in Human Beings, pages 9-49, National Bureau of Economic Research, Inc.
    8. Haskel, Jonathan & Hawkes, Denise & Pereira, Sonia, 2005. "Skills, human capital and the plant productivity gap: UK evidence from matched plant, worker and workforce data," CEPR Discussion Papers 5334, C.E.P.R. Discussion Papers.
    9. Francisco Lima, 2000. "Internal labour markets: a case study," Nova SBE Working Paper Series wp378, Universidade Nova de Lisboa, Nova School of Business and Economics.
    10. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    11. Nitzan, Jonathan & Bichler, Shimshon, 2009. "Capital as Power. A Study of Order and Creorder," EconStor Books, ZBW - Leibniz Information Centre for Economics, number 157973, December.
    12. Raghuram G. Rajan & Julie Wulf, 2006. "The Flattening Firm: Evidence from Panel Data on the Changing Nature of Corporate Hierarchies," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 759-773, November.
    13. Jonathan S. Leonard, 1990. "Executive Pay and Firm Performance," ILR Review, Cornell University, ILR School, vol. 43(3), pages 13, April.
    14. Arnab Chatterjee & Bikas K. Chakrabarti, 2007. "Kinetic Exchange Models for Income and Wealth Distributions," Papers 0709.1543, arXiv.org, revised Nov 2007.
    15. Anthony Atkinson & Thomas Piketty, 2010. "Top Incomes : A Global Perspective," PSE-Ecole d'économie de Paris (Postprint) halshs-00754875, HAL.
    16. Julia I. Lane & John C. Haltiwanger & James Spletzer, 1999. "Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital," American Economic Review, American Economic Association, vol. 89(2), pages 94-98, May.
    17. Paul Joskow & Nancy Rose & Andrea Shepard, 1993. "Regulatory Constraints on CEO Compensation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1 Microec), pages 1-72.
    18. Joan Robinson, 1953. "The Production Function and the Theory of Capital," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 21(2), pages 81-106.
    19. Thomas Piketty & Emmanuel Saez, 2001. "Income Inequality in the United States, 1913-1998 (series updated to 2000 available)," NBER Working Papers 8467, National Bureau of Economic Research, Inc.
    20. Eriksson, Tor, 1999. "Executive Compensation and Tournament Theory: Empirical Tests on Danish Data," Journal of Labor Economics, University of Chicago Press, vol. 17(2), pages 262-280, April.
    21. Thomas Piketty & Emmanuel Saez, 2006. "The Evolution of Top Incomes: A Historical and International Perspective," American Economic Review, American Economic Association, vol. 96(2), pages 200-205, May.
    22. Ariga, Kenn & Brunello, Giorgio & Ohkusa, Yasushi & Nishiyama, Yoshihiko, 1992. "Corporate hierarchy, promotion, and firm growth: Japanese internal labor market in transition," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 440-471, December.
    23. Brown, Charles & Medoff, James, 1989. "The Employer Size-Wage Effect," Journal of Political Economy, University of Chicago Press, vol. 97(5), pages 1027-1059, October.
    24. Gallegati, Mauro & Keen, Steve & Lux, Thomas & Ormerod, Paul, 2006. "Worrying trends in econophysics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 1-6.
    25. Oulton, Nicholas, 1998. "Competition and the Dispersion of Labour Productivity amongst UK Companies," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 23-38, January.
    26. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez, 2014. "Where is the land of Opportunity? The Geography of Intergenerational Mobility in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1553-1623.
    27. Jean-Jacques Hublin & Abdelouahed Ben-Ncer & Shara E. Bailey & Sarah E. Freidline & Simon Neubauer & Matthew M. Skinner & Inga Bergmann & Adeline Le Cabec & Stefano Benazzi & Katerina Harvati & Philip, 2017. "New fossils from Jebel Irhoud, Morocco and the pan-African origin of Homo sapiens," Nature, Nature, vol. 546(7657), pages 289-292, June.
    28. George Deltas, 2003. "The Small-Sample Bias of the Gini Coefficient: Results and Implications for Empirical Research," The Review of Economics and Statistics, MIT Press, vol. 85(1), pages 226-234, February.
    29. Hellerstein, Judith K & Neumark, David & Troske, Kenneth R, 1999. "Wages, Productivity, and Worker Characteristics: Evidence from Plant-Level Production Functions and Wage Equations," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 409-446, July.
    30. Atkinson, A. B. & Piketty, Thomas (ed.), 2010. "Top Incomes: A Global Perspective," OUP Catalogue, Oxford University Press, number 9780199286898.
    31. Pianegonda, S & Iglesias, J.R & Abramson, G & Vega, J.L, 2003. "Wealth redistribution with conservative exchanges," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 322(C), pages 667-675.
    32. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1993. "Hierarchies and compensation: A case study," European Economic Review, Elsevier, vol. 37(2-3), pages 366-378, April.
    33. Main, Brian G M & O'Reilly, Charles A, III & Wade, James, 1993. "Top Executive Pay: Tournament or Teamwork?," Journal of Labor Economics, University of Chicago Press, vol. 11(4), pages 606-628, October.
    34. Melissa Osborne & Herbert Gintis & Samuel Bowles, 2001. "The Determinants of Earnings: A Behavioral Approach," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1137-1176, December.
    35. Rick Audas & Tim Barmby & John Treble, 2004. "Luck, Effort, and Reward in an Organizational Hierarchy," Journal of Labor Economics, University of Chicago Press, vol. 22(2), pages 379-396, April.
    36. Treble, John & van Gameren, Edwin & Bridges, Sarah & Barmby, Tim, 2001. "The internal economics of the firm: further evidence from personnel data," Labour Economics, Elsevier, vol. 8(5), pages 531-552, December.
    37. repec:hal:pseose:halshs-00847231 is not listed on IDEAS
    38. Facundo Alvaredo & Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 3-20, Summer.
    39. A. Chatterjee & B. K. Chakrabarti, 2007. "Kinetic exchange models for income and wealth distributions," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 60(2), pages 135-149, November.
    40. Jacob Mincer, 1958. "Investment in Human Capital and Personal Income Distribution," Journal of Political Economy, University of Chicago Press, vol. 66(4), pages 281-281.
    41. Boix, Carles & Rosenbluth, Frances, 2014. "Bones of Contention: The Political Economy of Height Inequality," American Political Science Review, Cambridge University Press, vol. 108(1), pages 1-22, February.
    42. Sahota, Gian Singh, 1978. "Theories of Personal Income Distribution: A Survey," Journal of Economic Literature, American Economic Association, vol. 16(1), pages 1-55, March.
    43. Hung-Lin Tao & I-Ting Chen, 2009. "The level of technology employed and the internal hierarchical wage structure," Applied Economics Letters, Taylor & Francis Journals, vol. 16(7), pages 739-744.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Fix, Blair, 2018. "A Hierarchy Model of Income Distribution," Working Papers on Capital as Power 2018/02, Capital As Power - Toward a New Cosmology of Capitalism.
    2. Fix, Blair, 2018. "A Hierarchy Model of Income Distribution," SocArXiv s3y2m, Center for Open Science.
    3. Fix, Blair, 2018. "Economics from the Top Down: Does Hierarchy Unify Economic Theory?," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 180922, January.
    4. Fix, Blair, 2018. "Economics from the Top Down: Does Hierarchy Unify Economic Theory?," Thesis Commons 7uqw9, Center for Open Science.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fix, Blair, 2017. "Evidence for a Power Theory of Personal Income Distribution," SocArXiv qgwus, Center for Open Science.
    2. Fix, Blair, 2018. "The Trouble With Human Capital Theory," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 86, pages 15-32.
    3. Fix, Blair, 2018. "The trouble with human capital theory," Working Papers on Capital as Power 2018/07, Capital As Power - Toward a New Cosmology of Capitalism.
    4. Fix, Blair, 2018. "The Trouble with Human Capital Theory," SocArXiv ax6k7, Center for Open Science.
    5. Fix, Blair, 2018. "The growth of US top income inequality: A hierarchical redistribution hypothesis," Working Papers on Capital as Power 2018/05, Capital As Power - Toward a New Cosmology of Capitalism.
    6. Fix, Blair, 2018. "Capitalist income and hierarchical power: A gradient hypothesis," Working Papers on Capital as Power 2018/06, Capital As Power - Toward a New Cosmology of Capitalism.
    7. Fix, Blair, 2018. "Capitalist Income and Hierarchical Power," SocArXiv u8epv, Center for Open Science.
    8. Fix, Blair, 2018. "The Growth of US Top Income Inequality: A Hierarchical Redistribution Hypothesis," SocArXiv suqnk, Center for Open Science.
    9. Blair Fix, 2018. "Hierarchy and the power-law income distribution tail," Journal of Computational Social Science, Springer, vol. 1(2), pages 471-491, September.
    10. Blair Fix, 2022. "Economic development and the death of the free market," Evolutionary and Institutional Economics Review, Springer, vol. 19(1), pages 1-46, April.
    11. Fix, Blair, 2020. "Economic Development and the Death of the Free Market," SocArXiv g86am, Center for Open Science.
    12. Fix, Blair, 2021. "Living the good life in a non-growth world: Investigating the role of hierarchy," SocArXiv wem9p, Center for Open Science.
    13. Fix, Blair, 2021. "Living the Good Life in a Non-Growth World. Investigating the Role of Hierarchy," Working Papers on Capital as Power 2021/02, Capital As Power - Toward a New Cosmology of Capitalism.
    14. Fix, Blair, 2020. "Economic Development and the Death of the Free Market," Working Papers on Capital as Power 2020/01, Capital As Power - Toward a New Cosmology of Capitalism.
    15. Fix, Blair, 2019. "Personal Income and Hierarchical Power," SocArXiv pb475, Center for Open Science.
    16. Fix, Blair, 2019. "How the Rich Are Different: Hierarchical Power as the Basis of Income Size and Class," SocArXiv t8muy, Center for Open Science.
    17. Blair Fix, 2021. "How the rich are different: hierarchical power as the basis of income size and class," Journal of Computational Social Science, Springer, vol. 4(2), pages 403-454, November.
    18. Fix, Blair, 2019. "How the rich are different: Hierarchical power as the basis of income size and class," Working Papers on Capital as Power 2019/02 (v.2), Capital As Power - Toward a New Cosmology of Capitalism.
    19. Fix, Blair, 2019. "How the rich are different: Hierarchical power as the basis of income and class," Working Papers on Capital as Power 2019/02, Capital As Power - Toward a New Cosmology of Capitalism.
    20. Fix, Blair, 2021. "Redistributing Income Through Hierarchy," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 98, pages 58-86.

    More about this item

    Keywords

    income distribution; hierarchy; power;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:zbw:capwps:201703. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: http://www.capitalaspower.com/ .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.