Academic journal article Monthly Labor Review

The Rise in the Highest Incomes

Academic journal article Monthly Labor Review

The Rise in the Highest Incomes

Article excerpt

Much has been written about the increase in recent decades in the inequality of the income distribution in the United States. What is behind the rise in the incomes of those at the very top of the distribution?

In "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?" (NBER Working Paper 13270), Steven N. Kaplan and Joshua Rauh of the Graduate School of Business at the University of Chicago consider this question. They look at four groups of highly compensated individuals: top executives of firms that are not in the finance sector; financial service sector employees from investment banks and fund companies; lawyers; and professional athletes and celebrities. Kaplan and Rauh refer to the first and second groups, for short, as "Main Street" and "Wall Street."

Their evidence indicates that these four groups account for somewhere between 15.0 percent to 26.5 percent of those who make up the very highest adjusted gross income categories (such as the top 0.1 percent, 0.01 percent and so on). The researchers believe that their assumptions are conservative and that these groups may represent even larger fractions of these categories.

According to Kaplan and Rauh, their evidence provides support for three theories about the increase in inequality. …

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