Information technology and the rise of the power law economy

[摘要] We show that the dramatically increasing share of income going to top earners can be explained by the rise of the ;;power law economy;; and argue this reflects increased digitization and networks. Specifically, tax data (1960-2008) show that a bigger share of individual incomes are drawn from a power law, as opposed to the long-established log-normal distribution. We present a simple theoretical model to argue that the increased role of power laws is consistent with the growth of information technology, because digitization and networks facilitate winner-take-most markets. We generate four testable hypotheses, and find they match the data. (1) Our model, incorporating power laws, fits the data better than any purely log-normal distribution, (2) the increase in the variance of the log-normal portion of the distribution has slowed, suggesting a slowing of skill-biased technical change, (3) more individuals now select into the power law economy, (4) there is more skewness within that economy.

[发布机构] Massachusetts Institute of Technology