Working Paper: NBER ID: w17303
Authors: Carola Frydman; Raven Molloy
Abstract: Executive pay fell during the 1940s, marking the last notable decrease in the past 70 years. We study this decline using a new panel dataset on the remuneration of top executives in 246 firms. We find that government regulation--including explicit salary restrictions and taxation--had, at best, a modest effect on executive pay. By contrast, a decline in the returns to firm size and an increase in the power of labor unions contributed greatly to the reduction in executive compensation relative to other workers' earnings from 1940 to 1946. The continued decrease in relative executive pay remains largely unexplained.
Keywords: executive compensation; income inequality; labor unions; government regulation
JEL Codes: G3; J31; M50; N32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government regulation (L51) | executive pay (M12) |
| salary restrictions (J32) | executive pay (M12) |
| taxation (H20) | executive pay (M12) |
| decline in returns to firm size (L25) | executive pay (M12) |
| firm size (L25) | executive pay (M12) |
| increasing power of labor unions (J51) | executive pay (M12) |
| unionization rates (J50) | executive pay (M12) |