Managerial Job Assignment and Imperfect Competition in Asymmetric Equilibrium

This paper develops a tractable general equilibrium model with multiple market locations in which the interplay between product markets and the market for managerial skills determines both the size distribution of firms and top wage income shares. Despite ex ante symmetry of potential entrants, the analysis suggests that skewness in the distributions of firm size and wages naturally arises when differences among firms in productivity or product quality become increasingly magnified in profit differences, a property which is inherent in standard models of imperfect competition. Results are also consistent with a positive relationship of firm size to both productivity and profitability. Moreover, the analysis suggests that lean management is associated with high wages at the top, whereas a decline in set up costs to enter markets has inconclusive effects on inequality