Technological Change and the Growing Inequality in Managerial Compensation

45 Pages Posted: 9 Mar 2009 Last revised: 1 Oct 2015

See all articles by Hanno N. Lustig

Hanno N. Lustig

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Stijn Van Nieuwerburgh

Columbia University Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); New York University Stern School of Business, Department of Finance

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Date Written: August 7, 2010

Abstract

Three of the most fundamental changes in US corporations since the early 1970s have been (1) the increased importance of organizational capital in production, (2) the increase in managerial income inequality and pay-performance sensitivity, and (3) the secular decrease in labor market reallocation. Our paper develops a simple explanation for these changes: A shift in the composition of productivity growth away from vintage-specific to general growth. This shift has stimulated the accumulation of organizational capital in existing firms and reduced the need for reallocating workers to new firms. We characterize the optimal managerial compensation contract when firms accumulate organizational capital but risk-averse managers cannot commit to staying with the firm. A calibrated version of the model reproduces the increase in managerial compensation inequality and the increased sensitivity of pay to performance in the data over the last three decades.

Suggested Citation

Lustig, Hanno N. and Syverson, Chad and Van Nieuwerburgh, Stijn, Technological Change and the Growing Inequality in Managerial Compensation (August 7, 2010). Journal of Financial Economics (JFE), Vol. 99, No. 3, 2011; NYU Working Paper No. FIN-08-044. Available at SSRN: https://ssrn.com/abstract=1354531

Hanno N. Lustig

Stanford Graduate School of Business ( email )

Stanford GSB
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National Bureau of Economic Research (NBER)

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Chad Syverson

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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Stijn Van Nieuwerburgh (Contact Author)

Columbia University Graduate School of Business ( email )

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HOME PAGE: http://https://www0.gsb.columbia.edu/faculty/svannieuwerburgh/

National Bureau of Economic Research (NBER)

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United States

Centre for Economic Policy Research (CEPR)

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United Kingdom

New York University Stern School of Business, Department of Finance ( email )

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United States

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