Career Lotto: Labor Supply in Winner-Take-All Markets

Abstract

Are people prone to selecting occupations with highly skewed income distributions despite minuscule chances of success? Assembling a comprehensive pool of potential teenage entrants into professional tennis (a typical winner-take-all market), we construct objective measures of relative ability and earnings projections. We find that prospective tennis professionals are attracted to right-skewed earnings distributions, independent of mean and variance. If skewness in prize money fell to zero, males would be 23% and females 5% less likely to continue pursuing a professional career, on average. Thus, winner-take-all labor markets appear to systematically encourage those with modest talents to pursue long-shot careers.

Keywords: winner-take-all markets, superstar markets, labor supply, human capital, gender differences, skewness preferences

JEL Classification: J22, J24, J31, J44, L83