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Management Compensation and Firm-Level Income Inequality

Author

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  • Frederiksen, Anders

    (Aarhus University)

  • Poulsen, Odile

    (University of East Anglia)

Abstract

In recent decades, most developed countries have experienced a simultaneous increase in income inequality and management compensation. In this paper, we study the relation between management compensation and firm-level income dynamics in a general equilibrium model. Empirical estimation, of the model’s key parameters show that the rising management premium is indeed the main driving force behind the observed increase in income inequality. This is the case even when other potential sources such as technological progress and skill-biased technological change are taken into account. We also show that a rising management premium produces income distribution dynamics at the firm level which are similar to those observed at the market level, i.e. rising income inequality overall as well as within and between education groups.

Suggested Citation

  • Frederiksen, Anders & Poulsen, Odile, 2008. "Management Compensation and Firm-Level Income Inequality," IZA Discussion Papers 3676, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp3676
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    References listed on IDEAS

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    More about this item

    Keywords

    skill-biased technological change; two-sector search model; income inequality; personnel data;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • M5 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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