Abstract
Hierarchies allow individuals to leverage their knowledge through others' time. This mechanism increases productivity and amplifies the impact of skill heterogeneity on earnings inequality. This article analyzes the earnings and organization of US lawyers and uses an equilibrium model of knowledge hierarchies inspired by Garicano and Rossi-Hansberg (2006. "Organization and Inequality in a Knowledge Economy," 121 Quarterly Journal of Economics 1383-436) to assess how much lawyers' productivity and the distribution of earnings across lawyers reflects lawyers' ability to organize problem-solving hierarchically. Our estimates imply that hierarchical production leads to at least a 30% increase in productivity in this industry, relative to a situation where lawyers within the same office do not "vertically specialize." We further find that it amplifies earnings inequality, mostly by increasing the earnings of the very highest percentile lawyers in business and litigation-related segments.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 653-684 |
| Number of pages | 32 |
| Journal | Journal of Law, Economics, and Organization |
| Volume | 32 |
| Issue number | 4 |
| DOIs | |
| State | Published - Nov 2016 |
Funding
We thank Pol Antras, Matthew Gentzkow, Lars Nesheim, and Esteban Rossi-Hansberg and participants at various seminars, the 2006 Summer Meetings of the Econometric Society, and NBER Summer Institute for comments and suggestions. We are especially grateful to Steve Tadelis, who presented this article and offered extensive comments at the latter, and to the Editor and referees at this journal. The research in this article was conducted while the authors were Census Bureau research associates at the Chicago Research Data Center. Research results and conclusions are those of the authors and do not necessarily indicate concurrence by the Bureau of the Census. This article has been screened to ensure that no confidential data are revealed.
ASJC Scopus subject areas
- Economics and Econometrics
- Organizational Behavior and Human Resource Management
- Law
