July 20, 2018 | Posted by James McMahon
What explains the power-law distribution of top incomes? This paper tests the hypothesis that it is firm hierarchy that creates the power-law income distribution tail. Using the available case-study evidence on firm hierarchy, I create the first large-scale simulation of the hierarchical structure of the US private sector. Although not tuned to do so, this model reproduces the power-law scaling of top US incomes. I show that this is purely an effect of firm hierarchy. This raises the possibility that the ubiquity of power-law income distribution tails is due to the ubiquity of hierarchical organization in human societies.
Hierarchy and the power‑law income distribution tail
Fix, Blair. (2018). Journal of Computational Social Science. Vol. 1. No. 2. July. pp. 471-491.