Journal Article Raw Materials, Profits, and the Productivity Slowdown: Some Doubts Get access David Grubb David Grubb London School of Economics Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 101, Issue 1, February 1986, Pages 175–184, https://doi.org/10.2307/1884647 Published: 01 February 1986

T HE aggregate distribution of earnings in all Western countries is approximately lognormal over most of its range, but the earnings of the top 10% or 20% of individuals follow the Pareto form, which generates a great excess of very high earnings compared with the tail of a lognormal distribution. Individuals at the top appear to be paid according to the job they perform, rather than their ability. This paper explains these features in terms of profit-maximising behaviour. From time to time, a single new manager or management team improves a company's profit by millions of dollars per year. This shows that a senior manager can influence the company's total output far more than a junior employee. His greater influence over output derives from having much more control over the company's resources. Profit-maximising companies offer high salaries for senior management jobs because even a small improvement in their performance leads to a worthwhile increase in output, and competitive bidding for the best managers then drives their salaries up to high levels. This in outline is the explanation for high earnings developed formally in the rest of this paper.