A simple theory of Pareto-distributed earnings

C-Tier
Journal: Economics Letters
Year: 2024
Volume: 234
Issue: C

Score contribution per author:

1.005 = (α=2.01 / 1 authors) × 0.5x C-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

I introduce a simple model which endogenously generates a Pareto distribution in top earnings. Workers inhabit different niches, and the earnings of a worker is determined by the niche-specific supply of labor and a downward-sloping labor demand curve. The highest paid workers are the ones that inhabit a niche with few other workers. A Pareto tail in earnings emerges as long as the labor demand curve has a limit elasticity and the distribution of workers over niches satisfies a regularity condition from extreme-value theory, satisfied by virtually all continuous distributions in economics.

Technical Details

RePEc Handle
repec:eee:ecolet:v:234:y:2024:i:c:s0165176523005189
Journal Field
General
Author Count
1
Added to Database
2026-01-25