A Simple Theory of Pareto Earnings

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I introduce a simple model which endogenously generates a Pareto distribution in top earnings,
consistent with empirics. Workers inhabit different niches, and the earnings of a worker is determined
by the niche-specifc supply of labor and a constant-elasticity 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 distribution of workers over niches satisfies a regularity condition from extreme-value theory, satisfied by virtually all continuous distributions in economics.
UdgiverCopenhagen Business School [wp]
Antal sider11
StatusUdgivet - 2020
NavnWorking Paper / Department of Economics. Copenhagen Business School