Power Laws, CEO Compensation and Inequality

10 Pages Posted: 30 Aug 2014

See all articles by Calvin Blackwell

Calvin Blackwell

College of Charleston - School of Business

Rachel Graefe-Anderson

University of Mary Washington

Frank L Hefner

College of Charleston - Department of Economics

Dyanne Vaught

College of Charleston

Date Written: August 27, 2014

Abstract

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

Blackwell, Calvin and Graefe-Anderson, Rachel and Hefner, Frank L and Vaught, Dyanne, Power Laws, CEO Compensation and Inequality (August 27, 2014). Available at SSRN: https://ssrn.com/abstract=2489191 or http://dx.doi.org/10.2139/ssrn.2489191

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

Frank L Hefner

College of Charleston - Department of Economics ( email )

5 Liberty Street
Charleston, SC 29401
United States
+1 843 953 8111 (Phone)

Dyanne Vaught

College of Charleston ( email )

66 George Street
Charleston, SC 29424
United States

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