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Do Entrenched Managers Pay Their Workers More?

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Abstract

Based on a two-million-observation panel dataset that matches public firms with detailed data on their employees, we find that entrenched managers pay their workers more. For example, our estimates show that CEOs with more control rights (votes) than all other blockholders together, pay their workers about 6%, or $2,200 per year, higher wages. Since cash flow rights ownership by the CEO and better corporate governance are found to mitigate such behavior, we interpret the higher pay as evidence of agency problems between shareholders and managers affecting workers’ pay. The findings do not appear to be driven by endogeneity of managerial ownership and are robust to a series of robustness checks. These results are consistent with an agency model in which entrenched managers pay high wages because they come with private benefits, such as lower-effort wage bargaining and better CEO-employee relations, and suggest more broadly an important link between the corporate governance of large public firms and labor market outcomes.

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  • Svaleryd, helena, 2005. "Do Entrenched Managers Pay Their Workers More?," Working Paper Series 654, Research Institute of Industrial Economics.
  • Handle: RePEc:hhs:iuiwop:0655
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    1. Anderton, Bob & Brenton, Paul, 1999. "Outsourcing and Low-Skilled Workers in the UK," Bulletin of Economic Research, Wiley Blackwell, vol. 51(4), pages 267-285, October.
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    5. Alexander Hijzen & Holger Görg & Robert C. Hine, 2005. "International Outsourcing and the Skill Structure of Labour Demand in the United Kingdom," Economic Journal, Royal Economic Society, vol. 115(506), pages 860-878, October.
    6. Haskel, Jonathan & Heden, Ylva, 1999. "Computers and the Demand for Skilled Labour: Industry- and Establishment-Level Panel Evidence for the UK," Economic Journal, Royal Economic Society, vol. 109(454), pages 68-79, March.
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    8. Mary Amiti & Shang-Jin Wei, 2005. "Fear of service outsourcing: is it justified?," Economic Policy, CEPR;CES;MSH, vol. 20(42), pages 308-347, April.
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    More about this item

    Keywords

    Corporate Governance; Agency Problems; Private Benefits; Matched Employer-Employee Data; Wages;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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