The Distributional Effect of Trade on the CEO Market

Juan Correa, Francisco Parro and Rafael Sanchez

Economica, 2023, vol. 90, issue 357, 111-139

Abstract: We study the relationship between trade openness and CEO pay dispersion across firms. Using US firm‐level data, we show that trade has an unequal effect on CEO equilibrium pay at firms of different sizes (sales). An increase of 10% in the industry openness degree raises CEO compensation by about 14% in firms at the 99th percentile of the size distribution. However, CEO compensation falls by 5% in firms at the 1st percentile. Analogous results are derived for other points of the distribution. Our results show that trade openness impacts inequality within the very top of the income distribution, where skill differentials are less evident.

Date: 2023
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