From Classes to Copulas: Wages, Capital, and Top Incomes

33 Pages Posted: 30 May 2018

See all articles by Rolf Aaberge

Rolf Aaberge

Statistics Norway; Institute for the Study of Labor (IZA); Deaprtment of Economics

Anthony B. Atkinson

University of Oxford - Nuffield College of Medicine; CESifo (Center for Economic Studies and Ifo Institute)

Sebastian Königs

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division; IZA Institute of Labor Economics

Abstract

Public debates about the rise in top income shares often focus on the growing dispersion in earnings and the soaring pay for top executives and financial-sector employees. But can the change in the marginal distribution of earnings on its own explain the rise in top income shares? Are top executives replacing capital owners in the group of top-income earners, or are we rather witnessing a fusion of top capital and top earnings? This paper proposes an extension of the copula framework and uses it for exploring the changing composition of top incomes.It illustrates that changes in top income shares can easily be decomposed into respective changes in the marginal distributions of labour and capital income and the changing association between the two types of income. An application using tax record data from Norway shows that the association between top labour and capital incomes grew stronger between 1995 and 2005 in the top half of the wage and capital income distribution, though it declined for the top 1 per cent of capital income receivers. A gender decomposition demonstrates that the association of wage and capital incomes at the top is particularly striking for men, while women are largely under-represented in the top halves of the two marginal distributions.

Keywords: income distribution, top incomes, income composition, copulas

JEL Classification: C14, D31, D33

Suggested Citation

Aaberge, Rolf and Atkinson, Anthony B. and Königs, Sebastian, From Classes to Copulas: Wages, Capital, and Top Incomes. IZA Discussion Paper No. 11522, Available at SSRN: https://ssrn.com/abstract=3185214

Rolf Aaberge (Contact Author)

Statistics Norway ( email )

N-0033 Oslo
Norway

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Deaprtment of Economics ( email )

Norway

Anthony B. Atkinson

University of Oxford - Nuffield College of Medicine

CESifo (Center for Economic Studies and Ifo Institute)

Sebastian Königs

Organization for Economic Co-Operation and Development (OECD) - Social Policy Division ( email )

Paris
France

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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