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Earnings Inequality and the Global Division of Labor: Evidence from the Executive Labor Market

Jan Schymik ()

Discussion Papers in Economics from University of Munich, Department of Economics

Abstract: Many industrialized economies have seen a rapid rise in top income inequality and in the globalization of production since the 1980s. In this paper I propose an open economy model of executive pay to study how offshoring affects the pay level and incentives of top earners. The model introduces a simple principal-agent problem into a heterogeneous firm talent assignment model and endogenizes pay levels and the sensitivity of pay to performance in general equilibrium. Using unique data of manager-firm matches including executives from stock market listed firms across the U.S. and Europe, I quantify the model predictions empirically. Overall, I find that between 2000 and 2014 offshoring has increased executive pay levels, raised earnings inequality across executives and increased the sensitivity of pay to firm performance.

Keywords: Offshoring; Earnings Structure; Inequality; Incentives; Executive Compensation (search for similar items in EconPapers)
JEL-codes: D2 F1 F2 J3 L2 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-bec, nep-hrm and nep-lma
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