Is the Share of Income of the Top One Per cent Due to the Marginal Product of Labour or Managerial Power?

  • Marta R. M. Spreafico


Marta Spreafico in this chapter, titled ‘Is the Share of Income of the Top One Percent Due to the Marginal Product of Labour or Managerial Power?’, argues that the last 30 years have seen a rapid increase in the share of income of the top one per cent, especially in the USA. This has led to increasing concern in some quarters about the consequences of the increase in income inequality. However, for a long time, neoclassical economics has generally ignored the problem. This is largely because of its uncritical acceptance that all employees, including the highest paid, are paid their marginal products in competitive labour markets and receive their ‘just deserts’. The recent increase in overall inequality is also attributed to skill-biased technical change and the race between technology and education. These explanations are examined in light of empirical and theoretical arguments that question the existence of the aggregate production function and the marginal productivity theory of distribution. It is concluded that the explanation for the increase in income of the top one per cent must lie elsewhere such as an increase in managerial power.


  1. Alvaredo, F., Atkinson, A. B., Piketty, T., & Saez, E. (2013). The top 1 percent in international and historical perspective. Journal of Economic Perspectives, 27(3), 3–20.CrossRefGoogle Scholar
  2. Atkinson, A. B. (2005). The Atkinson review: Final report. Measurement of government output and productivity for the National Accounts. London: Palgrave Macmillan.Google Scholar
  3. Atkinson, A. B. (2015). Inequality. What can be done? Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  4. Autor, D. H. (2014). Skills, education, and the rise of earnings inequality among the ‘other 99 percent’. Science, 344(6186), 843–851.CrossRefGoogle Scholar
  5. Bebchuk, L. A., & Fried, J. M. (2003). Executive compensation as an agency problem. Journal of Economic Perspectives, 17(3), 71–92.CrossRefGoogle Scholar
  6. Bebchuk, L. A., & Fried, J. M. (2004). Pay without performance: The unfulfilled promise of executive compensation. Cambridge, MA: Harvard University Press.Google Scholar
  7. Bebchuk, L. A., & Fried, J. M. (2005). Pay without performance: Overview of the issues. Journal of Applied Corporate Finance, 17(4), 8–23.CrossRefGoogle Scholar
  8. Bebchuk, L. A., & Grinstein, Y. (2005). The growth of executive pay. Oxford Review of Economic Policy, 21(2), 283–303.CrossRefGoogle Scholar
  9. Birner, J. (2002). The Cambridge controversies in capital theory: A study in the logic of theory development. London: Routledge.CrossRefGoogle Scholar
  10. Bivens, J., & Mishel, L. (2013). The pay of corporate executives and financial professionals as evidence of rents in top 1 percent incomes. Journal of Economic Perspectives, 27(3), 57–78.CrossRefGoogle Scholar
  11. Chirinko, R. S. (2008). σ: The long and short of it. CESIFO working paper no. 2234.
  12. Clark, J. B. (1899). The distribution of wealth. New York: Macmillan.Google Scholar
  13. Cobb, C. W., & Douglas, P. H. (1928). A theory of production. American Economic Review, 18(1), 139–165. (Supplement).Google Scholar
  14. Cohen, A. J., & Harcourt, G. C. (2003). Retrospectives: Whatever happened to the Cambridge capital theory controversies? Journal of Economic Perspectives, 17(1), 199–214.CrossRefGoogle Scholar
  15. Conyon, M. J. (2006). Executive compensation and incentives. The Academy of Management Perspectives, 20(1), 25–44.CrossRefGoogle Scholar
  16. Deaton, A. (2013). The great escape: Health, wealth, and the origins of inequality. Princeton: Princeton University Press.Google Scholar
  17. Felipe, J., & Fisher, F. M. (2008). Aggregation (production). In S. N. Durlauf & L. E. Blume (Eds.), The new Palgrave dictionary of economics (2nd ed.). New York: Palgrave Macmillan.Google Scholar
  18. Felipe, J., & McCombie, J. S. L. (2001). The CES production function, the accounting identity, and Occam’s razor. Applied Economics, 33(10), 1221–1232.CrossRefGoogle Scholar
  19. Felipe, J., & McCombie, J. S. L. (2013). The aggregate production function and the measurement of technical change: ‘Not even wrong’. Cheltenham: Edward Elgar.CrossRefGoogle Scholar
  20. Ferguson, C. E. (1971). Capital theory up to date: A comment on Mrs Robinson’s article. The Canadian Journal of Economics/Revue Canadienne d’Economique, 4(2), 250–254.CrossRefGoogle Scholar
  21. Fisher, F. M. (1971). Aggregation production functions and the explanation of wages: A simulation experiment. The Review of Economics and Statistics, LIII(4), 305–325.CrossRefGoogle Scholar
  22. Fisher, F. M. (1992). In J. Monz (Ed.), Aggregation. Aggregate production functions and related topics. London: Harvester Wheatsheaf.Google Scholar
  23. Fisher, F. M. (2005). Aggregate production functions – A pervasive, but unpersuasive, fairytale. Eastern Economic Journal, 31(3), 489–491.Google Scholar
  24. Friedman, M. (1953). The methodology of positive economics. In M. Friedman (Ed.), Essays in positive economics. Chicago: University of Chicago Press.Google Scholar
  25. Goldin, C. D., & Katz, L. F. (2009). The race between education and technology. Cambridge, MA: Harvard University Press.Google Scholar
  26. Haldane, A., Brennan, S., & Madouros, V. (2010). What is the contribution of the financial sector: Miracle or mirage? In A. Turner (Ed.), The future of finance, the LSE report. London: London School of Economics.Google Scholar
  27. Hoover, K. D. (2012). Applied intermediate macroeconomics. Cambridge: Cambridge University Press.Google Scholar
  28. Jensen, M. C., & Murphy, K. J. (1990a). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225–264.CrossRefGoogle Scholar
  29. Jensen, M. C., & Murphy, K. J. (1990b). CEO incentives: It’s not how much you pay, but how. Harvard Business Review, 68(3), 138–149.Google Scholar
  30. Jensen, M. C., Murphy, K. J., & Wruck, E. G. (2004). Remuneration: Where we’ve been, how we got to here, what are the problems, and how to fix them. ECGI working paper series in finance no. 44.
  31. Kaldor, N. (1955–1956). Alternative theories of distribution. Review of Economic Studies, 23(2), 83–100.Google Scholar
  32. Kaplan, S. N. (2012). Executive compensation and corporate governance in the U.S.: Perceptions, facts and challenges (NBER working paper series, no. w18395). Available at:
  33. Kuhn, T. S. (1970). The structure of scientific revolutions (2nd ed.). Chicago: Chicago University Press.Google Scholar
  34. Lakatos, I. (1970). Falsification and the methodology of scientific research programmes. In I. Lakatos & A. Musgrave (Eds.), Criticism and the growth of knowledge. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  35. Mankiw, N. G. (2013). Defending the one percent. Journal of Economic Perspectives, 27(3), 21–34.CrossRefGoogle Scholar
  36. Mankiw, N. G., & Taylor, J. P. (2008). Macroeconomics (European ed.). New York: Worth Publishers.Google Scholar
  37. Mazzucato, M. (2013). Debunking public versus private sector myths. Institute for New Economic Thinking. Available at:
  38. Milanovic, B. (2013). Why income inequality is here to stay. Harvard Business Review. Available at:
  39. Mishel, L., & Davis, A. (2014). CEO pay continues to rise as typical workers are paid less. Economic Policy Institute, Issue brief no. 380.
  40. Mishel, L., & Schieder, J. (2016). Stock market headwinds meant less generous year for some CEOs. Economic Policy Institute Report. Available at:
  41. OECD. (2011). Divided we stand. Why inequality keeps on rising. Paris: OECD Publishing.Google Scholar
  42. Okun, A. M. (1977). Equality and efficiency: The big tradeoff. Washington, DC: Brookings Institution.Google Scholar
  43. Pasinetti, L. L., & Scazzieri, R. (2008). Capital theory (paradoxes). In S. N. Durlauf & L. E. Blume (Eds.), The new Palgrave dictionary of economics (2nd ed.). London: Palgrave Macmillan.Google Scholar
  44. Phelps Brown, E. H. (1957). The meaning of the fitted Cobb-Douglas function. Quarterly Journal of Economics, 71(4), 546–560.CrossRefGoogle Scholar
  45. Philippon, T., & Reshef, A. (2012). Wages and human capital in the US finance industry: 1909–2006. Quarterly Journal of Economics, 127(4), 1551–1609.CrossRefGoogle Scholar
  46. Piketty, T. (2014). Capital in the twenty-first century. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
  47. Piketty, T. (2015). Putting distribution back at the center of economics: Reflections on ‘capital in the twenty-first century’. Journal of Economic Perspectives, 29(1), 67–88.CrossRefGoogle Scholar
  48. Rajan, R. (2010). Fault lines: How hidden fractures still threaten the world economy. Princeton: Princeton University Press.Google Scholar
  49. Rowthorn, R. (2014). A note on Piketty’s capital in the twenty-first century. Cambridge Journal of Economics, 38(5), 1275–1284.CrossRefGoogle Scholar
  50. Samuelson, P. A. (1962). Parable and realism in capital theory: The surrogate production function. The Review of Economic Studies, 29(3), 193–206.CrossRefGoogle Scholar
  51. Samuelson, P. A. (1966). A summing up. Quarterly Journal of Economics, 80(4), 568–583.CrossRefGoogle Scholar
  52. Simon, H. A. (1979). On parsimonious explanations of production relations. Scandinavian Journal of Economics, 81(4), 459–474.CrossRefGoogle Scholar
  53. Solow, R. M. (2014). Correspondence, “the one percent”. Journal of Economic Perspectives, 28(1), 243–244.CrossRefGoogle Scholar
  54. Stiglitz, J. E. (2012). The price of inequality. New York: W. W. Norton & Company.Google Scholar
  55. Stout, L. A. (2014). Killing conscience: The unintended behavioral consequences of ‘pay for performance’. Journal of Corporation Law, 39(3), 525–561.Google Scholar
  56. Thurow, L. C. (1975). Generating inequality. London: Macmillan.CrossRefGoogle Scholar
  57. Vitali, S., Glattfelder, J. B., & Battiston, S. (2011). The network of global corporate control. PLOS One. Available at:
  58. Weisbach, M. S. (2007). Optimal executive compensation versus managerial power: A review of Lucian Bebchuk and Jesse Fried’s “Pay without performance: The unfulfilled promise of executive compensation”. Journal of Economic Literature, 45(2), 419–428.CrossRefGoogle Scholar

Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Marta R. M. Spreafico
    • 1
  1. 1.Institute of Economic PolicyUniversità Cattolica del Sacro CuoreMilanoItaly

Personalised recommendations