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Hierarchy and the Power-Law Income Distribution Tail

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  • Fix, Blair

Abstract

What explains the power-law distribution of top incomes? This paper tests the hypothesis that it is firm hierarchy that creates the power-law income distribution tail. Using the available case-study evidence on firm hierarchy, I create the first large-scale simulation of the hierarchical structure of the US private sector. Although not tuned to do so, this model reproduces the power-law scaling of top US incomes. I show that this is purely an effect of firm hierarchy. This raises the possibility that the ubiquity of power-law income distribution tails is due to the ubiquity of hierarchical organization in human societies.

Suggested Citation

  • Fix, Blair, 2018. "Hierarchy and the Power-Law Income Distribution Tail," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue OnlineFir, pages 1-21.
    • Handle: RePEc:zbw:espost:180820
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    File URL: https://www.econstor.eu/bitstream/10419/180820/3/fix_hierarchy_power_law.pdf
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. Anthony B. Atkinson & Christoph Lakner, 2021. "Capital and Labor: The Factor Income Composition of Top Incomes in the United States, 1962-2006," The Review of Economics and Statistics, MIT Press, vol. 103(5), pages 892-904, December.
    5. 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.
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    Cited by:

    1. 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.
    2. 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.
    3. Fix, Blair, 2020. "Economic Development and the Death of the Free Market," SocArXiv g86am, Center for Open Science.
    4. Fix, Blair, 2018. "The Growth of US Top Income Inequality: A Hierarchical Redistribution Hypothesis," SocArXiv suqnk, Center for Open Science.
    5. 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.
    6. 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.
    7. Fix, Blair, 2019. "How the Rich Are Different: Hierarchical Power as the Basis of Income Size and Class," SocArXiv t8muy, Center for Open Science.
    8. Fix, Blair, 2021. "The Rise of Human Capital Theory," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue 95, pages 29-41.
    9. 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.
    10. Fix, Blair, 2019. "Energy, Hierarchy and the Origin of Inequality," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 14(4, April), pages 1-32.
    11. Blair Fix, 2019. "Energy, hierarchy and the origin of inequality," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-32, April.
    12. 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.

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    18. Blair Fix, 2019. "Energy, hierarchy and the origin of inequality," PLOS ONE, Public Library of Science, vol. 14(4), pages 1-32, April.
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