Do Changes in Wealth Inequality Help Explain CEO Compensation Inequality? A Study Using the Pareto Distribution

13 Pages Posted: 12 Sep 2012

See all articles by Calvin Blackwell

Calvin Blackwell

College of Charleston - School of Business

Rachel Graefe-Anderson

University of Mary Washington

Dyanne Vaught

College of Charleston

Date Written: September 10, 2012

Abstract

Over the past twenty years there has been a dramatic increase in both CEO pay and the wealth of the richest Americans. We hypothesize that the increase in CEO pay is due to the same economy-wide factors that have increased the asset value of the wealthiest Americans. We test this hypothesis by estimating Pareto distributions for both CEO compensation and the Forbes 400 list of the wealthiest Americans and then comparing the behavior of these distributions over time. We find that the Forbes 400 distribution changes little over time, while CEO compensation changes significantly. We find no evidence for the hypothesis that these two distributions move together.

Keywords: CEO, Pareto Distribution, Power Law, Forbes 400, Inequality

JEL Classification: M12, M52, D31

Suggested Citation

Blackwell, Calvin and Graefe-Anderson, Rachel and Vaught, Dyanne, Do Changes in Wealth Inequality Help Explain CEO Compensation Inequality? A Study Using the Pareto Distribution (September 10, 2012). Available at SSRN: https://ssrn.com/abstract=2144469 or http://dx.doi.org/10.2139/ssrn.2144469

Calvin Blackwell (Contact Author)

College of Charleston - School of Business ( email )

Department of Economics
66 George Street
Charleston, SC 29424
United States
843-953-7836 (Phone)
843-953-5697 (Fax)

Rachel Graefe-Anderson

University of Mary Washington ( email )

1301 College Avenue
Fredericksburg, VA 22401
United States

Dyanne Vaught

College of Charleston ( email )

66 George Street
Charleston, SC 29424
United States

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