IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/31366.html
   My bibliography  Save this paper

The Spillover Effects of Top Income Inequality

Author

Listed:
  • Joshua D. Gottlieb
  • David Hémous
  • Jeffrey Hicks
  • Morten G. Olsen

Abstract

Top income inequality in the United States has increased considerably within occupations. This phenomenon has led to a search for a common explanation. We instead develop a theory where increases in income inequality originating within a few occupations can "spill over" through consumption into others. We show theoretically that such spillovers occur when an occupation provides non-divisible services to consumers, with physicians our prime example. Examining local income inequality across U.S. regions, the data suggest that such spillovers exist for physicians, dentists, and real estate agents. Estimated spillovers for other occupations are consistent with the predictions of our theory.

Suggested Citation

  • Joshua D. Gottlieb & David Hémous & Jeffrey Hicks & Morten G. Olsen, 2023. "The Spillover Effects of Top Income Inequality," NBER Working Papers 31366, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31366
    Note: EFG EH LS
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w31366.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    2. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    3. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Betting on Exports: Trade and Endogenous Heterogeneity," Economic Journal, Royal Economic Society, vol. 128(609), pages 612-651, March.
    4. Zack Cooper & Stuart V Craig & Martin Gaynor & John Van Reenen, 2019. "The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 51-107.
    5. Florian Scheuer & Iván Werning, 2017. "The Taxation of Superstars," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(1), pages 211-270.
    6. Francesca Mazzolari & Giuseppe Ragusa, 2013. "Spillovers from High-Skill Consumption to Low-Skill Labor Markets," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 74-86, March.
    7. Fatih Guvenen & Fatih Karahan & Serdar Ozkan & Jae Song, 2015. "What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk?," NBER Working Papers 20913, National Bureau of Economic Research, Inc.
    8. Philippe Aghion & Ufuk Akcigit & Antonin Bergeaud & Richard Blundell & David Hemous, 2019. "Innovation and Top Income Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 1-45.
    9. 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.
    10. Philip Armour & Richard V. Burkhauser & Jeff Larrimore, 2016. "Using The Pareto Distribution To Improve Estimates Of Topcoded Earnings," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1263-1273, April.
    11. Jonathan T. Kolstad, 2013. "Information and Quality when Motivation is Intrinsic: Evidence from Surgeon Report Cards," NBER Working Papers 18804, National Bureau of Economic Research, Inc.
    12. Jeffrey Clemens & Joshua D. Gottlieb, 2014. "Do Physicians' Financial Incentives Affect Medical Treatment and Patient Health?," American Economic Review, American Economic Association, vol. 104(4), pages 1320-1349, April.
    13. Kirill Borusyak & Peter Hull & Xavier Jaravel, 2022. "Quasi-Experimental Shift-Share Research Designs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(1), pages 181-213.
    14. David J. Deming, 2017. "The Growing Importance of Social Skills in the Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1593-1640.
    15. Alan Manning, 2004. "We Can Work It Out: The Impact of Technological Change on the Demand for Low‐Skill Workers," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(5), pages 581-608, November.
    16. Marco Leonardi, 2015. "The Effect of Product Demand on Inequality: Evidence from the United States and the United Kingdom," American Economic Journal: Applied Economics, American Economic Association, vol. 7(3), pages 221-247, July.
    17. Paul Goldsmith-Pinkham & Isaac Sorkin & Henry Swift, 2020. "Bartik Instruments: What, When, Why, and How," American Economic Review, American Economic Association, vol. 110(8), pages 2586-2624, August.
    18. 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.
    19. Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), 2011. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, volume 2, number 2.
    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. 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.
    22. Alan S. Blinder, 2009. "How Many US Jobs Might be Offshorable?," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 10(2), pages 41-78, April.
    23. 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.
    24. 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.
    25. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-880, June.
    26. Dingel, Jonathan & Gottlieb, Joshua & Lozinski, Maya & Mourot, Pauline, 2023. "Market Size and Trade in Medical Services," CEPR Discussion Papers 18029, C.E.P.R. Discussion Papers.
    27. 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.
    28. 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.
    29. Enrico Moretti, 2013. "Real Wage Inequality," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 65-103, January.
    30. Charles I. Jones & Jihee Kim, 2018. "A Schumpeterian Model of Top Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 126(5), pages 1785-1826.
    31. Xavier Gabaix & Jean‐Michel Lasry & Pierre‐Louis Lions & Benjamin Moll, 2016. "The Dynamics of Inequality," Econometrica, Econometric Society, vol. 84, pages 2071-2111, November.
    32. Fatih Guvenen & Fatih Karahan & Serdar Ozkan & Jae Song, 2021. "What Do Data on Millions of U.S. Workers Reveal About Lifecycle Earnings Dynamics?," Econometrica, Econometric Society, vol. 89(5), pages 2303-2339, September.
    33. Felix Koenig, 2023. "Technical Change and Superstar Effects: Evidence from the Rollout of Television," American Economic Review: Insights, American Economic Association, vol. 5(2), pages 207-223, June.
    34. Ma, Lin & Ruzic, Dimitrije, 2020. "Globalization and top income shares," Journal of International Economics, Elsevier, vol. 125(C).
    35. Katherine Ho, 2009. "Insurer-Provider Networks in the Medical Care Market," American Economic Review, American Economic Association, vol. 99(1), pages 393-430, March.
    36. repec:hal:pseose:halshs-00944873 is not listed on IDEAS
    37. Jon Bakija & Adam Cole & Bradley Heim, 2008. "Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data," Department of Economics Working Papers 2010-22, Department of Economics, Williams College, revised Jan 2012.
    38. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2018. "Betting on Exports: Trade and Endogenous Heterogeneity," Economic Journal, Royal Economic Society, vol. 128(609), pages 612-651, March.
    39. Alan Manning, 2004. "We Can Work It Out: the Impact of Technological Change on the Demand for Low Skill Workers," CEP Discussion Papers dp0640, Centre for Economic Performance, LSE.
    40. Rosen, Sherwin, 1981. "The Economics of Superstars," American Economic Review, American Economic Association, vol. 71(5), pages 845-858, December.
    41. Thomas Philippon & Ariell Reshef, 2012. "Wages and Human Capital in the U.S. Finance Industry: 1909--2006," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(4), pages 1551-1609.
    42. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    43. Zabel, Jeffrey E., 2004. "The demand for housing services," Journal of Housing Economics, Elsevier, vol. 13(1), pages 16-35, March.
    44. Bohdan Kukharskyy, 2012. "Trade, Superstars, and Welfare," Working Papers 120, Bavarian Graduate Program in Economics (BGPE).
    45. 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.
    46. Jonathan T. Kolstad, 2013. "Information and Quality When Motivation Is Intrinsic: Evidence from Surgeon Report Cards," American Economic Review, American Economic Association, vol. 103(7), pages 2875-2910, December.
    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. Schetter, Ulrich & Tejada, Oriol, 2018. "Globalization and the Concentration of Talent," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181562, Verein für Socialpolitik / German Economic Association.
    2. Philippe Aghion & Ufuk Akcigit & Antonin Bergeaud & Richard Blundell & David Hemous, 2019. "Innovation and Top Income Inequality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(1), pages 1-45.
    3. Facundo Albornoz & Antonio Cabrales & Esther Hauk, 2019. "Occupational Choice with Endogenous Spillovers," The Economic Journal, Royal Economic Society, vol. 129(621), pages 1953-1970.
    4. Davis, Donald R. & Dingel, Jonathan I., 2020. "The comparative advantage of cities," Journal of International Economics, Elsevier, vol. 123(C).
    5. Joshua D. Gottlieb & Maria Polyakova & Kevin Rinz & Hugh Shiplett & Victoria Udalova, 2023. "Who Values Human Capitalists' Human Capital? The Earnings and Labor Supply of U.S. Physicians," NBER Working Papers 31469, National Bureau of Economic Research, Inc.

    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. Ulrich Schetter & Oriol Tejada, 2019. "On Globalization and the Concentration of Talent," Growth Lab Working Papers 161, Harvard's Growth Lab.
    2. Schetter, Ulrich & Tejada, Oriol, 2018. "Globalization and the Concentration of Talent," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181562, Verein für Socialpolitik / German Economic Association.
    3. Keller, Wolfgang & Olney, William W., 2021. "Globalization and executive compensation," Journal of International Economics, Elsevier, vol. 129(C).
    4. Shuhei Aoki & Makoto Nirei, 2014. "Zipf's Law, Pareto's Law, and the Evolution of Top Incomes in the U.S," Working Papers e074, Tokyo Center for Economic Research.
    5. Omer Faruk Koru, 2019. "Automation and Top Income Inequality," PIER Working Paper Archive 19-004, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    6. Lee, Jongkwan & Shim, Myungkyu & Yang, Hee-Seung, 2022. "The rise of low-skill service employment: The role of dual-earner households," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 255-273.
    7. Xavier Gabaix & Jean‐Michel Lasry & Pierre‐Louis Lions & Benjamin Moll, 2016. "The Dynamics of Inequality," Econometrica, Econometric Society, vol. 84, pages 2071-2111, November.
    8. Andrés César & Guillermo Falcone & Pablo Garriga, 2022. "Robots, Exports and Top Income Inequality: Evidence for the U.S," CEDLAS, Working Papers 0307, CEDLAS, Universidad Nacional de La Plata.
    9. Chhy, Niroth, 2016. "The Rise of the Working Rich, Market Imperfections, and Income Inequality," MPRA Paper 75373, University Library of Munich, Germany.
    10. Frydman, Carola & Papanikolaou, Dimitris, 2018. "In search of ideas: Technological innovation and executive pay inequality," Journal of Financial Economics, Elsevier, vol. 130(1), pages 1-24.
    11. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    12. Florian Dorn & Christoph Schinke, 2018. "Top income shares in OECD countries: The role of government ideology and globalisation," The World Economy, Wiley Blackwell, vol. 41(9), pages 2491-2527, September.
    13. Bojaj, Martin M. & Djurovic, Gordana & Fabris, Nikola & Milovic, Nikola, 2023. "Top 1% and inequality connectedness in the EMU and WB," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 139-155.
    14. Li, Shiyuan & Li, Yumin, 2021. "The Impact of Mobile Phone Adoption on Income Inequality," MPRA Paper 110969, University Library of Munich, Germany.
    15. Cavenaile, Laurent, 2021. "Offshoring, computerization, labor market polarization and top income inequality," Journal of Macroeconomics, Elsevier, vol. 69(C).
    16. Tetsugen HARUYAMA, 2021. "A Schumpeterian Exploration of Gini and Top/Bottom Income Shares," Discussion Papers 2125, Graduate School of Economics, Kobe University.
    17. Michael Böhm & Daniel Metzger & Per Strömberg, 2022. "“Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium," ECONtribute Discussion Papers Series 147, University of Bonn and University of Cologne, Germany.
    18. Ferey, Antoine & Haufler, Andreas & Perroni, Carlo, 2023. "Incentives, globalization, and redistribution," Journal of Public Economics, Elsevier, vol. 224(C).
    19. Jones, C.I., 2016. "The Facts of Economic Growth," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 3-69, Elsevier.
    20. Job Boerma & Aleh Tsyvinski & Alexander P. Zimin, 2022. "Bunching and Taxing Multidimensional Skills," Papers 2204.13481, arXiv.org.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

    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:nbr:nberwo:31366. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.