Scandinavian Working Papers in Economics

Working Papers,
Copenhagen Business School, Department of Economics

No 21-2020: A Simple Theory of Pareto Earnings

Karl Harmenberg ()
Additional contact information
Karl Harmenberg: Department of Economics, Copenhagen Business School, Postal: Copenhagen Business School, Department of Economics, Porcelaenshaven 16 A. 1. floor, DK-2000 Frederiksberg, Denmark

Abstract: I introduce a simple model which endogenously generates a Pareto distribution in top earnings, consistent with empirics. Workers inhabit different niches, and the earnings of a worker is determined by the niche-specifc supply of labor and a constant-elasticity labor-demand curve. The highest paid workers are the ones that inhabit a niche with few other workers. A Pareto tail in earnings emerges as long as the distribution of workers over niches satisfies a regularity condition from extreme-value theory, satisfied by virtually all continuous distributions in economics.

Keywords: Wage differentials; Labor markets; Earnings; Pareto distribution

JEL-codes: J31; J40

11 pages, December 22, 2020

Full text files

53337332-9312-43ad-8059-98533ba7db3a PDF-file Full text

Download statistics

Questions (including download problems) about the papers in this series should be directed to CBS Library Research Registration Team ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 17:10:58.