The Effect of Labor Market Demand on U.S. CEO Pay Since 1980

Gregory L. Nagel

The Financial Review, 2010, vol. 45, issue 4, 931-950

Abstract: This paper shows that the rise in U.S. chief executive officer (CEO) pay from 1980 to 2003 is only partially explained by competition for profit‐producing talent in the labor market. This conclusion is obtained by removing unintended data biases from tests of the only theoretical model in the literature that relates labor market competition (measured by large firm size) to CEO pay level. When the biases are removed or minimized, no more than 33% of the 600+ percentage rise in large‐firm CEO pay since 1980 is explained by a corresponding increase in large firm size.

Date: 2010
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