Human Capitalists, Reallocation and the Global Division of Labor

The rise of top inequality in the United States and many other countries in recent decades is well documented but its causes remain controversial. Using data on equity ownership and income streams of corporate top earners in the U.S. and the U.K., this paper assesses the role of reallocation towards "superstar firms" for top earners. If economic activity is reallocated toward the largest firms in the economy, this affects equity prices, top earners' marginal product and their incentives. Exploiting the global rise of trade in intermediate inputs as a source for economic reallocation, I assess three predictions of this hypothesis: (i) equity prices increase more for superstar firms, (ii) the value of equity ownership and labor incomes of top earners in superstar firms increase, (iii) equity ownership responds more elastically than labor incomes which changes the compensation structure of top earners. The results suggest that focusing on the income skill premium fundamentally underestimates the returns to globalization for top earners. Furthermore, the reallocation-channel rationalizes the prevalence of capital incomes vis-à-vis labor incomes for top earners.