Management Compensation and Firm-Level Income Inequality

Anders Frederiksen () and Odile Poulsen

No 3676, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In recent decades, most developed countries have experienced a simultaneous increase in income inequality and management compensation. In this paper, we study the relation between management compensation and firm-level income dynamics in a general equilibrium model. Empirical estimation, of the model’s key parameters show that the rising management premium is indeed the main driving force behind the observed increase in income inequality. This is the case even when other potential sources such as technological progress and skill-biased technological change are taken into account. We also show that a rising management premium produces income distribution dynamics at the firm level which are similar to those observed at the market level, i.e. rising income inequality overall as well as within and between education groups.

Keywords: skill-biased technological change; two-sector search model; income inequality; personnel data (search for similar items in EconPapers)
JEL-codes: J3 J6 M5 O3 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2008-09
New Economics Papers: this item is included in nep-bec, nep-dge and nep-lab
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Citations:

Forthcoming - published as 'Income Inequality: The Consequences of Skill-Upgrading - When Firms Have Hierarchical Organizational Structures' in Economic Inquiry, 2016, 54 (2), 1224-1239

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