The Effect of Labor Market Demand on U.S. CEO Pay Since 1980
Financial Review, Forthcoming
27 Pages Posted: 20 Feb 2008 Last revised: 26 Aug 2009
Date Written: August 19, 2009
This paper shows that the rise in U.S. CEO pay from 1980 to 2003 is only partially explained by competition for profit-producing talent in the labor market. This conclusion is obtained by removing unintended data biases from tests of the only theoretical model in the literature that relates labor market competition (measured by large firm size) to CEO pay level. When the biases are removed or minimized, no more than 33% of the 600 percent rise in large firm CEO pay since 1980 is explained by a corresponding increase in large firm size.
Keywords: Executive compensation, CEO wages, labor market demand, extreme value theory, superstars.
JEL Classification: D2, D3, G34, J3
Suggested Citation: Suggested Citation