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A Hierarchy Model of Income Distribution

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  • Fix, Blair

Abstract

Based on worldly experience, most people would agree that firms are hierarchically organized, and that pay tends to increase as one moves up the hierarchy. But how this hierarchical structure affects income distribution has not been widely studied. To remedy this situation, this paper presents a new model of income distribution that explores the effects of social hierarchy. This ‘hierarchy model’ takes the limited available evidence on the structure of firm hierarchies and generalizes it to create a large-scale simulation of the hierarchical structure of the United States economy. Using this model, I conduct the first quantitative investigation of hierarchy’s effect on income distribution. I find that hierarchy plays a dominant role in shaping the tail of US income distribution. The model suggests that hierarchy is responsible for generating the power-law scaling of top incomes. Moreover, I find that hierarchy can be used to unify the study of personal and functional income distribution, as well as to understand historical trends in income inequality.

Suggested Citation

  • 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.
  • Handle: RePEc:zbw:capwps:201802
    as

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    References listed on IDEAS

    as
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    5. Nirei, Makoto, 2009. "Pareto Distributions in Economic Growth Models," IIR Working Paper 09-05, Institute of Innovation Research, Hitotsubashi University.
    6. Fix, Blair, 2015. "Putting Power Back Into Growth Theory," Review of Capital as Power, Capital As Power - Toward a New Cosmology of Capitalism, vol. 1(2), pages 1-37.
    7. 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.
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    9. 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.
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    11. Atkinson,Anthony B. & Lakner,Christoph & Atkinson,Anthony B. & Lakner,Christoph, 2017. "Capital and labor : the factor income composition of top incomes in the United States, 1962-2006," Policy Research Working Paper Series 8268, The World Bank.
    12. Veblen, Thorstein, 1904. "Theory of Business Enterprise," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1904.
    13. Makoto Nirei & Wataru Souma, 2007. "A Two Factor Model Of Income Distribution Dynamics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(3), pages 440-459, September.
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    More about this item

    Keywords

    income distribution; hierarchy; power;
    All these keywords.

    JEL classification:

    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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