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National Income Accounting When Firms Insure Managers: Understanding Firm Size and Compensation Inequality

Author

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  • Barney Glaser
  • Hanno Lustig
  • Mindy Zhang

Abstract

Among U.S. publicly traded firms, the average firm's capital share has declined, even though the aggregate capital share has increased. This paper attributes the secular increase taken together capital share among these firms to an increase in firm size inequality that is only partially mitigated by an increase in inter-firm labor compensation inequality. This paper develops a model in which firms optimally provide managers with insurance against firm-specific shocks. Consequently, larger, more productive firms return a larger share of rents to shareholders, while less productive firms endogenously exit. An increase in firm-level risk lowers the threshold at which firms exit and increases the measure of firms in the right tail of the size distribution. As a result, such an increase always increases the aggregate capital share in the economy, but may lower the average firm's capital share. [Working Paper 22651]

Suggested Citation

  • Barney Glaser & Hanno Lustig & Mindy Zhang, 2016. "National Income Accounting When Firms Insure Managers: Understanding Firm Size and Compensation Inequality," Working Papers id:11353, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:11353
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    Citations

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    Cited by:

    1. David Autor & David Dorn & Lawrence F Katz & Christina Patterson & John Van Reenen, 2020. "The Fall of the Labor Share and the Rise of Superstar Firms [“Automation and New Tasks: How Technology Displaces and Reinstates Labor”]," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(2), pages 645-709.
    2. Giorgio Barba Navaretti & Anna Rosso, "undated". "Access to Capital Markets and the Geography of Productivity Leaders and Laggards," Development Working Papers 469, Centro Studi Luca d'Agliano, University of Milano.

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