Power Laws, CEO Compensation and Inequality
10 Pages Posted: 30 Aug 2014
Date Written: August 27, 2014
We observe that CEO compensation and top incomes in the US have both been increasing rapidly over the last thirty years. We hypothesize that the trends in CEO compensation have been caused by the same economy-wide factors that have contributed to increases in income. We test this hypothesis by using ExecuComp and IRS tax data to estimate power law distributions and compare the behavior of these distributions over time. Using linear regression techniques, we estimate a power law distribution for CEO compensation and individual income. We find that the parameters of income distribution and the distribution of CEO compensation are correlated.
Keywords: Inequality, CEO compensation, Power law distribution, Pareto distribution
JEL Classification: D31, J30
Suggested Citation: Suggested Citation