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.
|Place of Publication||Frederiksberg|
|Publisher||Copenhagen Business School [wp]|
|Number of pages||11|
|Publication status||Published - 2020|
|Series||Working Paper / Department of Economics. Copenhagen Business School|