Entrepreneurs, managers and inequality

Sang Yoon (Tim) Lee

Review of Economic Dynamics, 2019, vol. 32, 42-67

Abstract: Income concentration in the U.S. rose sharply since the 1970s. But the share of wealth held by the top 1 percent increased less. This can be partially accounted for by a quantitative model of occupational choice, in which rich individuals choose to become entrepreneurs or managers. Collateral constraints induce entrepreneurs to hold more wealth, while managers earn higher wages as a result of competitive assignments to firms. Declining tax progressivity from 1970 to 2000 replaces top entrepreneurs with top managers, which can account for 65% and 30% of the increase in the share of wages and income earned by the top 1 percent, respectively. At the same time, the share of wealth held by the top 1 percent remains stable, as entrepreneurs decumulate but managers accumulate wealth. (Copyright: Elsevier)

Keywords: Occupational choice; Wealth inequality; Progressive taxation (search for similar items in EconPapers)
JEL-codes: E21 E62 H31 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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DOI: 10.1016/j.red.2018.12.006

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