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. ? The Author 2016. Published by Oxford University Press on behalf of Yale University. All rights reserved.

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1 November 2016

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The Journal of Law, Economics, and Organization 32(4) , pp.653-684, 2016

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DOI: 10.1093/jleo/eww008

https://academic.oup.com/jleo/article-abstract/32/4/653/2503118?redirectedFrom=fulltext

This Journal article is published under the centre's Growth programme.