National Income Accounting When Firms Insure Managers: Understanding Firm Size and Compensation Inequality

Barney Glaser (), Hanno Lustig () and Mindy Zhang ()
Authors registered in the RePEc Author Service: Mindy Zhang Xiaolan

Working Papers from eSocialSciences

Abstract: Among U.S. publicly traded firms, the average firm's capital share has declined, even though the aggregate capital share has increased. This paper attributes the secular increase taken together capital share among these firms to an increase in firm size inequality that is only partially mitigated by an increase in inter-firm labor compensation inequality. This paper develops a model in which firms optimally provide managers with insurance against firm-specific shocks. Consequently, larger, more productive firms return a larger share of rents to shareholders, while less productive firms endogenously exit. An increase in firm-level risk lowers the threshold at which firms exit and increases the measure of firms in the right tail of the size distribution. As a result, such an increase always increases the aggregate capital share in the economy, but may lower the average firm's capital share. [Working Paper 22651]

Keywords: U.S. publicly traded firms; capital share; aggregate capital; secular increase taken together capital share; inter-firm labor compensation; productive firms (search for similar items in EconPapers)
Date: 2016-09
Note: Institutional Papers
References: Add references at CitEc
Citations: View citations in EconPapers (6)

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