Manager Pay Inequality and Market Power
Speaker(s)Jan Eeckhout (Pompeu Fabra University, Spain)
LocationTinbergen Institute Amsterdam, room 1.01
Date and time
December 14, 2023
16:00 - 17:15
Manager pay has increased considerably since 1980, and so has inequality in manager pay. During the same period, there has been a sharp rise in market power. Besides the con- ventional role of managers to grow firm size and increase productivity, we acknowledge that managers also help firms gain more market power. We model how imperfect competition in product markets affects manager pay, and decompose the contribution to manager pay from firm size and market power. We find that market power contributes on average 45.2% to compensation. Most strikingly, there is significant heterogeneity across managers. Top managers are hired disproportionately by firms with market power, and they get rewarded for it: 80.3% of top manager pay in 2019 was due to market power. Our main conclusion is that the rise of market power is responsible for half of the increase in average manager pay, and for nearly all of the increase in manager pay inequality. Joint paper with Renjie Bao and Jan De Loecker.