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

68 Pages Posted: 23 Jul 2007 Last revised: 6 Oct 2022

See all articles by Joshua D. Rauh

Joshua D. Rauh

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

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

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.

Suggested Citation

Rauh, Joshua D. and Kaplan, Steven Neil, Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes? (July 2007). NBER Working Paper No. w13270, Available at SSRN: https://ssrn.com/abstract=1002049

Joshua D. Rauh

Stanford Graduate School of Business ( email )

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Hoover Institution ( 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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European Corporate Governance Institute (ECGI) ( email )

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University of Chicago - Polsky Center for Entrepreneurship

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United States

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