Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?

67 Pages Posted: 20 Sep 2006  

Joshua D. Rauh

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

We consider how much of the top end of the income distribution can be attributed to four sectors - top executives of non-financial firms (Main Street); financial service sector employees from investment banks, hedge funds, private equity funds, and mutual funds (Wall Street); corporate lawyers; and professional athletes and celebrities. Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%). Individuals in the Wall Street category comprise at least as high a percentage of the top AGI brackets as non-financial executives of public companies. While the representation of top executives in the top AGI brackets has increased from 1994 to 2004, the representation of Wall Street has likely increased even more. While the groups we study represent a substantial portion of the top income groups, they miss a large number of high-earning individuals. We conclude by considering how our results inform different explanations for the increased skewness at the top end of the distribution. We argue the evidence is most consistent with theories of superstars, skill biased technological change, greater scale and their interaction.

Keywords: Compensation, Wage Differentials, Income Inequality, Corporate Governance

JEL Classification: J31, J33, G3, H24, M52

Suggested Citation

Rauh, Joshua D. and Kaplan, Steven N., Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes? (July 2007). CRSP Working Paper No. 615; AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=931280 or http://dx.doi.org/10.2139/ssrn.931280

Joshua D. Rauh

Stanford Graduate School of Business ( email )

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National Bureau of Economic Research (NBER)

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Steven Neil Kaplan (Contact Author)

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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