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Earnings Inequality and the Global Division of Labor: Evidence from the Executive Labor Market

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  • Schymik, Jan

Abstract

Many industrialized economies have seen a rapid rise in top income inequality and in the globalization of production since the 1980s. In this paper I propose an open economy model of executive pay to study how offshoring affects the pay level and incentives of top earners. The model introduces a simple principal-agent problem into a heterogeneous firm talent assignment model and endogenizes pay levels and the sensitivity of pay to performance in general equilibrium. Using unique data of manager-firm matches including executives from stock market listed firms across the U.S. and Europe, I quantify the model predictions empirically. Overall, I find that between 2000 and 2014 offshoring has increased executive pay levels, raised earnings inequality across executives and increased the sensitivity of pay to firm performance.

Suggested Citation

  • Schymik, Jan, 2017. "Earnings Inequality and the Global Division of Labor: Evidence from the Executive Labor Market," Discussion Papers in Economics 38385, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenec:38385
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    File URL: https://epub.ub.uni-muenchen.de/38385/1/Offshoring.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Offshoring; Earnings Structure; Inequality; Incentives; Executive Compensation;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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