Management Compensation and Firm-Level Income Inequality

28 Pages Posted: 8 Sep 2008

See all articles by Anders Frederiksen

Anders Frederiksen

IZA Institute of Labor Economics

Odile M. Poulsen

University of East Anglia (UEA) - School of Economic and Social Studies

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.

Keywords: income inequality, two-sector search model, skill-biased technological change, personnel data

JEL Classification: J3, J6, M5, O3

Suggested Citation

Frederiksen, Anders and Poulsen, Odile M., Management Compensation and Firm-Level Income Inequality. IZA Discussion Paper No. 3676. Available at SSRN: https://ssrn.com/abstract=1264551 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Anders Frederiksen (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Odile M. Poulsen

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
65
Abstract Views
534
rank
350,493
PlumX Metrics