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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 398:
The role of entrepreneurship in rising wealth and income inequality

Arvid Malm () and Tino Sanandaji ()

Abstract: Thomas Piketty has argued that the rising income share of top earners in the US is driven by the growing incomes of “Supermanagers”, high-level managers and supervisors in large firms. Piketty has further argued that this development is best explained by growing managerial bargaining power in conjunction with lower top marginal tax rates and changing social norms. We argue that Piketty´s claim that 60 percent of the top 0.1 percent earners are “Supermanagers” is mistaken. A closer examination of US tax data shows that these managers primarily tend to be active in closely held corporations, not in large firms. We also use the Survey of Consumer Finances to confirm that self-employed business owners constitute a large share of US top earners. In 2013, 58 percent of the top 0.5 percent earners in the US self-identified as self-employed business owners. This suggests that managerial bargaining power among salaried managers is unlikely to have been the main driving force behind the increase in top incomes. Furthermore, increasing returns to entrepreneurship may be an important yet little-discussed factor for explaining increasing income inequality.

Keywords: wealth; income distribution; entrepreneurship; (follow links to similar papers)

JEL-Codes: D31; L26; (follow links to similar papers)

13 pages, March 10, 2015

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