How much are larger business firms driving the increase in income inequality?

From Free Exchange at The Economist:

The benefits of size are thus enjoyed only by the most senior workers at a firm, who can extract a bigger premium for their skills and experience. A cleaner at a single shop does the same sort of work as those at a large chain. But managing a multinational firm such as Walmart requires a different—and much rarer—set of skills than that required to run a corner store. Over time this pushes up the salaries of the top brass at Walmart compared with corner-shop managers.

The authors find that the relationship between the growth in the size of companies and the level of inequality holds across the rich world. They looked at data from 1981 to 2010 on wages and the size of largest firms for 15 countries in the OECD, a club mostly of rich countries. The relationship between rising levels of income inequality and the size of firms was strong.

This effect is particularly noticeable in America and Britain, where firms have grown rapidly in recent decades. In America, for instance, the number of workers employed by the country’s 100 biggest firms rose by 53% between 1986 and 2010; in Britain the equivalent figure is 43.5%. On the other hand, in places where the size of firms has not changed much, such as Sweden, or where it has shrunk, such as Denmark, wage inequality has grown much less. Part of what is perceived as a global trend towards greater disparity in wages may actually be the result of the biggest firms employing a greater share of workers.

The piece is interesting throughout.  The original source by the way is H. Mueller, E. Simintzi and P. Ouimet, “Wage inequality and firm growth”, LIS Working Paper 632 (March 2015), gated here, earlier version here.  One implication is that we can expect quite high rates of income inequality from a mature Chinese economy.  Another is that we simply shouldn’t expect the United States to be as equal as the smaller northern European polities.

Comments

Interesting. Davis and Cobb (2010) report the opposite finding: "this chapter documents a strong negative relation between an economy's employment concentration (that is, the proportion of the labor force employed by the largest 10, 25, or 50 firms) and its level of income inequality." I wonder how we can reconcile the two claims - is it about time period, particular measures, etc.?

Closely related - the amazingly strong correlation of firm size and CEO pay - quoting the conclusion of Gabaix and Landier (2009):

We provide a simple, analytically solvable and calibratable competitive model of CEO compensation. From a theoretical point of view, its main contribution is to present closed-form expressions for the equilibrium CEO pay (Eq. 14), by drawing from extreme value theory (Eq. 8) to get a microfounded hypothesis for spacings between talents. The model can thereby explain the link between CEO pay and firm size across time, across firms and across countries. Empirically, the model seems to be able to explain the recent rise in CEO pay as an equilibrium outcome of the substantial growth in firm size. Our model differs from other explanations that rely on managerial rent extraction, greater power in the managerial labor market, or increased incentive-based compensation. The model can be generalized to the top executives within a firm and extended to analyze the impact of outside opportunities for CEO talent (such as the money management industry), and the impact of misperception of the cost of options on the average compensation.
Finally, the model allows us to propose a calibration of various quantities of interest in corporate finance and macroeconomics, such as the dispersion and impact of CEO talent.

Combining these observations with those of Mueller, Simintzi and Ouimet, because the pay for CEOs (typically the highest earner in a firm) very naturally follows a power law distribution with respect to firm size, increased income inequality will directly result from that natural occurrence. If one were serious about really combating growing income inequality over time, one would adopt policies that constrain firm size through robust competition, where the need for disciplined cost control to ensure profitability in such an environment would naturally constrain or even drive down the economically viable size of firms.

The benefits of size are thus enjoyed only by the most senior workers at a firm, who can extract a bigger premium for their skills and experience. A cleaner at a single shop does the same sort of work as those at a large chain. But managing a multinational firm such as Walmart requires a different—and much rarer—set of skills than that required to run a corner store. Over time this pushes up the salaries of the top brass at Walmart compared with corner-shop managers.

Well, if you take this literally, an obvious way to reduce this inequality would be to find the "skills" that the CEOs of large companies have and try to teach them to others. It can't be anything genetic, that would go against the dominant ideology, so it would have to be something environmental, but something incredibly rare so that it is possessed by a few thousand people at most in a nation of 300 million. You would look at Harvard Business School, ask what makes it so much more likely to graduate future CEOs than other business schools. Better teachers? Better curriculum? Maybe it's the walls, you could lobby Harvard to think of Social Justice by expanding the size of their classes.

But I don't buy it. "Skills" aren't why CEOs make so much. CEOs make so much because of barriers to entry.

What would be the percentage of overall employees other than the CEO at an average large corporation who could do the job at least as well as the CEO? I suspect, completely unscientifically, an average of around 30%.

"But managing a multinational firm such as Walmart requires a different—and much rarer—set of skills than that required to run a corner store."

Actually, there are probably fewer skills required to manage a big corporation than a corner store. CEOs have many subordinates to gather information, devise strategies and implement policies. The CEO might make the yes or no decision on a particular issue or he might delegate it to others. The operator of the smaller entity must perform these functions himself and, since his company isn't "too big to fail", if he fouls up it's all over. Big corporations don't expire overnight like mismanaged corner stores. They're in hock to big banks that want their money back.

"Big corporations don’t expire overnight like mismanaged corner stores. They’re in hock to big banks that want their money back." [snip]

Big corporations disintermediated themselves from banks for capital formation decades ago, in the '80's. They issue their own paper [bonds, or commercial paper] directly, in the capital markets.

You're on to something with your 1st statement, however. The largest corporations ally themselves with the gov't, to make themselves 'indispensable' or 'national champions. Think about the mutual interdependence of the global investment banks in distributing US Treasury debt, or the way that the federal gov't ran to the aid of corporations like GE, Goldman & even Harley Davidson [!] in 2008-by granting them banking licenses to afford them access to borrowing at the Fed's Discount Window.

There's a reason corporations are incented to become mammoth. The can avoid the two certainties of life which apply to individuals:

a) Death

b) Taxes.

The ceo's job is more to satisfy shareholders than anything else. The skills required to do that are probably ill defined and more related to the comparison of a Rolex to a Timex than any ability or function.

Ah, the naivety of MR commenters never ceases to astonish.

In actual fact, the CEO's job is NOT to satisfy shareholders "more than anything else".

Instead, the CEO & company officers "have a host of obligations they are required to meet, contractual and regulatory, such as paying suppliers, honoring terms of warranties, complying with environmental, product, and workplace safety laws, paying creditors (bondholders, banks, owners of rental property), paying taxes, and for public companies, fulfilling their obligations under state and Federal securities laws. Shareholders are at the very back of the line. They get their piece only after everyone else is satisfied. If you read between the lines of the duties of directors and officers, the implicit “don’t go bankrupt” duty clearly trumps concerns about shareholders" SOURCE: http://www.nakedcapitalism.com/2013/10/why-the-maximizing-shareholder-value-theory-of-corporate-governance-is-bogus.html

This stupid notion arose from another delusional economist, Michael Jensen, in a book and a later HBR article. Interestingly, Jensen later explicitly recanted in a NYT interview http://www.nytimes.com/2005/04/03/business/yourmoney/03guru.html?pagewanted=print&position=&_r=1&

A 'lift' from the NYT piece:

Q. So the maximum stock price is the holy grail?

A. Absolutely not. Warren Buffett says he worries as much when one of his companies becomes overvalued as undervalued. I agree. Overvalued equity is managerial heroin – it feels really great when you start out; you’re feted on television; investment bankers vie to float new issues.

But it doesn’t take long before the elation and ecstasy turn into enormous pain. The market starts demanding increased earnings and revenues, and the managers begin to say: “Holy Moley! How are we going to generate the returns?” They look for legal loopholes in the accounting, and when those don’t work, even basically honest people move around the corner to outright fraud.

If they hold a lot of stock or options themselves, it is like pouring gasoline on a fire. They fudge the numbers and hope they can sell the stock or exercise the options before anything hits the fan.

Q. Are you suggesting that executives be rewarded for driving down the price of the stock?

A. I’m saying they should be rewarded for being honest. A C.E.O. should be able to tell investors, “Listen, this company isn’t worth its $70 billion market cap; it’s really worth $30 billion, and here’s why.”

But the board would fire that executive immediately. I guess it has to be preventative – if executives would present the market with realistic numbers rather than overoptimistic expectations, the stock price would stay realistic. But I admit, we scholars don’t yet know the real answer to how to make this happen." [snip]

Still astonishing, that MR commenter knowledge - 'Instead, the CEO & company officers “have a host of obligations they are required to meet, contractual and regulatory, such as paying suppliers, honoring terms of warranties, complying with environmental, product, and workplace safety laws, paying creditors (bondholders, banks, owners of rental property), paying taxes, and for public companies, fulfilling their obligations under state and Federal securities laws.'

Which is why those CEO and company officers have employees to do all the actual work - they certainly make decisions, and do have various legal obligations that require their signature, but if you honestly think that the CFO of Procter & Gamble is personally involved paying creditors and paying taxes, well, that would be astonishing. It is certainly true that the CFO (and/or CIO) made the final decision of which software and hardware to buy to fulfill those obligations (and to some extent, the hiring of the employees involved in implementing those decisions) - but truly, it is a rare skill set to successfully implement and maintain a major software project. So rare that it is unusual to find any mere CEO, CFO, CIO, etc. possessing it.

"“Skills” aren’t why CEOs make so much. CEOs make so much because of barriers to entry."

Barriers to entry and skills are the same thing. Rarity of skills, is a barrier to entry.

OK, how about a short list of the skills required to be the CEO of a large corporation?

Let me literature review that for you.

No, the barriers to entry include much else besides "skills." Mainly, it's a matter of knowing the right people.

Networking and entrepreneurship are skills, but there's no secret handshake for the CEO club.

CEO of a large company is a really, really hard job to get and a really, really hard job to do to anyone's satisfaction.

Being born in the correct family is skills?

Which families are you under the impression have cornered the CEO market?

Is there any mechanism by which the bigger the firm, the less powerful the shareholders are, and therefore the easier it is for the CEO and his cronies to pillage them?

That economists do not point to the problem described in terms of its negative impact on real growth and real "wealth creation" demonstrates how much free lunch economics has grown to dominate the entire economic establishment.

In free lunch economics, workers are not consumers, and consumers are not workers.

In free lunch economics, GDP growth is driven by "wealth creation" which results from slashing wages to boost profits and thus drive up asset values, because consumer spending is driven by debt.

Using debt to build productive capital assets is a bad idea because increased prouctive capital will flood markets with goods which will force prices down to labor costs (labor in direct production and the labor in the productive capital assets), eliminating all economic profit from scarcity, which is best created by such things as patents and copyrights and branding, depending on government.

Without credit to fund consumption, GDP declines. And without real capitalism: building and maintaining productive capital assets and focusing on market rates of return on invested capital - investment in labor that produces goods not consumed, idle labor remains idle instead of being snapped up to build for a recovery, and in the process create the consumer cash to drive GDP growth.

In reality economics, labor and consumption and production are all tied together, so to talk of high income inequality without also pointing out that high incomes requires high consumption of production - all the money the high income earners get must be spent to fund labor doing something, or GDP will decline from potential. The 21st century is a time of slower and slower monetary velocity as cash sits idle until it inflates asset prices and goes to someone else who sits on it searching for assets to inflate in price. The "wealth created" by inflating asset prices is fantom and will vanish as soon as someone building competing capital assets with labor costs well below the market price.

You seem to be forgetting who those shareholders of those big evil companies are.

You, me, and the employees there.

I think you mean evil corporation 1, evil corporation 2, ...

The simplest explanation is still the principal-agent problem. Since the SEC required a non-binding vote on CEO pay, there have been many votes opposed to the pay but the board approves the pay anyway.

The other problem is that CEO pay is still small compared to the size of the underlying corporations. It's not clear what makes "good" management or "bad" management, and so the board has a tough time separating CEO pay from quality of CEO. In fact the two have been shown to be inverse. CEO's with more pay and bigger houses have worse performance because most of the performance relates to EQ, especially humility and honesty. In fact, boards can be impressed by the opposite, a CEO who is "assertive."

Unfortunately, I can't see a simple answer as long as humans run corporations, especially with the agency model. As a former British CEO said in an answer on Quora, "Unfortunately the Agency model means those who would be best at CEO are less likely to actually become CEO."

Based on the summary, the correlation and implied causation seems to be exclusively with "large corporations". I would think, however, that if one is looking for causation, globalisation might be a more logical source. This also explains the growing compensation of many outside the corporate management realm, to include sports figures, entertainers, intellectual property owners, etc. Larger markets create larger incomes (for some). Shouldn't be all that surprising.

Yes, the skills are rare (regardless if 30% of the employees think they can do the job better). Yes, the agency problem exists (although it exists at large or small firms, public or private, corner store of multi-national, and no one has yet devised a way of dealing with it).

But there's also...risk. Firms are much less diversified now, because of shareholder pressures to do so. Monitoring is much more intensive now, not because of changes in the BOD regulations, but because if higher institutional ownership of firms, i.e. shareholder concentration.

If the CEO is being asked to bear the risk, and their chances of being dismissed are much higher now than before (as can be evidenced by decreasing tenures), then they're going to want a way to hedge their employment risk. Higher compensation, is one way of doing so. If you're going to ask me to bear this risk, and you're likely going to replace me in 5 years anyway, you better pay me more.

A corporate failure is a failure for the stockholders and creditors even more than it is for the CEO. The idea that he/she should be immune to a financial disaster at the company run by them is counter to the assumption of risk, there is, in fact, no risk. CEOs aren't inventing cures for cancer or the next form of energy, they're bureaucratic administrators, like college presidents and federal department heads.

You're confusing 2 things. I said 2 things: employment risk is one thing...and that comes about due to greater shareholder concentration which increases monitoring.

The other is simply...diversification risk. This is the basic agency cost argument, but it's not necessarily the risk that the firm will go belly up. It's the risk associated with higher volatility in the firm's performance.

Of course the CEO is more exposed to such risk, then investors or creditors. That's why there's agency problems.

In theory people making huge sums of money should have skills very difficult to replace. I strongly suspect that's not the case for most CEOs. A company could probably administer an IQ test to its employees, find a lower-ranked employee with an IQ ~140 who would jump at the chance to make a lower-end six figure salary and probably do as well as the current CEO. I imagine this holds true for a large majority of corporations. But the people in charge of the corporate world from executives, large shareholders, institutional investors, all have an ideological interest to uphold the idea that CEOs and top executives have incredibly rare skills than require huge remuneration.

Maybe. But due to progressives it is nearly impossible to administer IQ tests in corporate America.

People are focusing too much on skills, and also imagining themselves as being just as smart as these guys....so, really we could all be Sam Walton.

The fact is that CEO's may not be more skilled, but they are more focused. Obsessively focused. I have dealt with several CEO's and they are severely workaholic - 3:00 am answering emails kind of stuff. People who basically live their job for 100+ hours per week. Sam Walton had Saturday 5:00 am meetings, but he'd be up at 4:00 am reviewing the books. Insanity.

Then there is the travel. I met a guy once who literally traveled around the world on business trips. Sorry, but that takes a special kind of soul to do soul-sucking month-long trips with a day in each country.

Anyone here who casually thinks they could be a CEO or posits that 30% of middle management could do it should consider the Navy SEALs.

Sure, there are tons of tough as nails Marines who try to become a SEAL, but many, many fail. And its not because they weren't muscled enough or were dumb. Its also a good example, because while SEALs are incredible, they also fail. So a failed CEO shouldn't be a signal that, well, it can't be that hard.

Same things with sports. Skill is often not enough - you have to have longevity: so the running back who runs well, but has poor knees loses out to some genetic freak with super knees.

Of course, being a CEO is probably easier than being a SEAL, but I seriously doubt you could just grab someone and get equal results. This is mainly wishful thinking that "hey, I should make that kind of money!"

"Then there is the travel."

Right, the travel is stressful, although it's toughest on the guys working their way up who are still flying commercial. The guys at the top who have their own plane and pilots and thus can't miss flights have it easier.

I wonder what % of CEOs can nap in a commercial airliner seat? I bet it's quite high. I never could.

The ability to thrive living the Frequent Flyer lifestyle is one big filter for people working their way up the executive ladder.

It ain't 1805. We have email, fax machines, the US Postal Service and magic phones. Why is extensive travel such a necessity to the executive class? CEOs that never wander down into the nether reaches of their own organizations are compelled to traverse the globe doing what, exactly?

Sam Walton had his own money on the line in Walmart, which is why he became the richest man in the world.

I've seen a medium sized company (a couple of thousand employees) hire an outsider to be CEO who proved to be almost completely useless (as in spent most of his time at his desk reading the WSJ). The board eased him out after a few years. Fortunately, CEO salaries and golden parachutes weren't quite as exorbitant back then.

IQ isn't the issue here. CEO's don't have more preferable skills than someone else, for that position, because they are more intelligent.

The skills they have are the skills one acquires through specialization; skills in decision making, or skills in risk taking etc etc. It all depends on the particular firm, at a particular time.

A company doesn't need a CEO to...tel them what to do...because everyone below the CEO is a neanderthal who couldn't rub two sticks together. In fact, in most cases, they're the one who present the options to the CEO to make a decision on. They need CEOs who specialize in decision making.

Sounds like a lot of fluff and hand-waving to justify absurd pay that can't be justified by any objective criteria.

You want companies to tell...you...what their criteria are?

My vague impression is that CEO pay today is much higher relative to executives two levels down than in, say, 1985.

I suspect the reason that CEOs are paid so much more today relative to senior managers is because they can.

But why couldn't they before?

It was considered in bad taste?

There was a real sea change in attitudes in which Mike Milken played a key role. I got an MBA in finance at UCLA in 1980-82 and the finance profs pushed the Milken worldview hard. It seemed revolutionary at the time.

But that was a long time ago.

By the way, I suspect that most colleges are paying their presidents too little, because the prestige of being the college president makes him the guy who ought to be the best fundraiser. If you could find a guy who knows how to act classy and scholarly while bringing home the bacon, he'd be worth a lot more than most universities pay right now.

In contrast, if your corporation has one guy who really is worth $30 million per year, he's probably not delegating enough.

I have always liked the theory that the CEO is paid so much as a means to incentivise his subordinates. There are quite a few people at any corporation who are candidates for the position, but are not there yet. These people are the fixers, the ones who work late, and who are desperate to keep their part of the enterprise on track so that they remain with a chance at the top slots. The bigger the enterprise the more of these people you have to incentivise and the more the CEO salary has to be, since the prize has to be significant on a probability adjusted basis. You can't just pay the CEO less and pay these people more since they will then slack off. Who would work 120 hour weeks for the remote chance of a 20% increase in salary?

So don't think of the CEO role as so difficult to do it requires super rare skills (although it generally does), think of it as a prize that you have people competing for. And its the competition that is what the pay is paying for.

The British government used to give out immense prizes to politicians to reward achievement -- e.g., the John Churchill beat the French at Blenheim in 1704 so he got Blenheim Palace as a reward. Much later in the 1700s, Edmund Burke refused to exploit an office for vast pecuniary gain and it was considered quite shocking. In the 19th Century, the British government went in the opposite direction and stopped making politicians rich. 241 years later, Marlborough's descendant Winston Churchill beat the Germans and got voted out of office for his troubles.

It's not clear that giving out palaces is a necessary incentive or is it too much?

The claim that 30% of workers have skills to be the CEO is one of the silliest I've encountered.

In fact, I believe nearly everyone who rises to make millions of dollars in our superstar economy has extraordinary skills of one kind or another. That doesn't mean that the market is perfect at always identifying the very best people, and it doesn't make it fair either. But true mediocrities rarely rise to the top.

"But true mediocrities rarely rise to the top"

Oh, my, WHERE to begin?

Ken Lay, Enron
Jonathan Schwartz, Sun Microsystems
Chuck Conway, K-Mart
George Shaheen, Webvan [ex Accenture CEO, for those who may have forgotten]
John Sculley, aapl
Bernie Ebbers, WorldCom
Angelo Mozilo, Countrywide
John Rigas, Adelphia Communications
Jeurgen Schrempp, Chrysler Daimler
Ray McDaniels, Moody's
Eckhard Pieffer, Compaq
Kerry Killinger, Washington Mutual [WaMu]
Dick Fuld, Lehman Brothers
Stan O'Neal: Merrill Lynch
Rick Wagoner: General Motors
Leo Apotheker, Hewlett Packard
Jimmy Cayne, Bear Sterns
Dennis Kozlowski, Tycho
Jon Corzine, MF Global
Robert Nardelli, Home Depot [later, Chrysler]
Ron Johnson, JC Penney

And the above is just confining one's temporal scope to the 21st C.

ps

Vikram Pandit, Citicorp
Carly Fiorina, H-P [again!]
Gerard Levin, Time-Warner
Martin Sullivan, AIG
Roger Smith, GM [1981-1990 for younger readers]
Bob Allen, AT&T [1990's, with its NCR acquisition]
John Akers, IBM [early '90's; near bankruptcy of the co]
Fred Joseph, Drexel Burnham Lambert [early '90's]
Al Dunlap, Sunbeam [mid '90's]

This is like if I claimed that no mediocre athletes get selected in the NFL draft, and you responded with a list of greatest all time draft busts.

Haha, I can't believe you beat me to the professional sports analogy by two minutes.

But you wouldn't be stupid enough to do that, after your howling embarrassment up thread, would you? ;)

By that logic, NBA players on losing teams could be replaced by average people.

I'd say about 15% of college educated workers would make a decent CEO if they were lucky enough to make it there. What "extraordinary skills" do CEOs or entrepreneurs have that can't be said to be present in the "top" 15% of college educated Americans? Intelligence, leadership ability, work ethic, I've seen it all.

Top 15% measured by what? At any rate, it's difficult to find even 1% of people willing to work the decades of 100 hour weeks becoming CEO of a large company usually entails.

You could look at heirs who become CEOs, like Tom Watson Jr. or Henry Ford II. My guess is that a much higher % of successful CEOs are the sons of CEOs tthan % of successful pro athletes are the sons of successful pro athletes. So it's a tough job, but not as hard as, say, hitting major league pitching.

I suspect that in sports it is easier to measure ability and performance, so the system is somewhat more efficient at rewarding the very best people.

LOL, no. Go teach a course at a top MBA program, and you'll see that even there you find wide variation in the the levels of the very things you mention.

I just don't think being the CEO of a major company requires any brilliance. So the market doesn't have to identify the best people. If someone finds his way into the position, he will probably do well because performance in the position isn't too heavily weighted toward that individual's ability and relies more on the larger structures of the institution and its position in the economy of the moment.

But it's a hard position to get to because of the social barriers to entry and advancement. The people with the most power in the corporate world and the economy at large -- the very rich, leaders of large investment firms with lots of shareholder power, board members who come from corporate executive backgrounds themselves -- have an interest in keeping CEO pay high because it benefits everyone in the club. They could probably save money by lowering pay because the position is more interchangeable than they want people to believe, but they won't because they all benefit from how things are now. They don't want some intelligent 35 year old from a middle class background coming in and proving he can do as well on a $150,000 salary (with travel expenses paid for) as the 30 mil CEO did.

"I just don’t think being the CEO of a major company requires any brilliance. So the market doesn’t have to identify the best people."

These 2 statements don't have any relation to each other. You may not need to be "brilliant" to be a CEO. But you certainly need particular skills which differentiate the best people from others.

I.e., "best people" at what? "Brilliance" isn't the metric here. Einstein would make a terrible CEO.

"But it’s a hard position to get to because of the social barriers to entry and advancement. The people with the most power in the corporate world and the economy at large — the very rich, leaders of large investment firms with lots of shareholder power, board members who come from corporate executive backgrounds themselves — have an interest in keeping CEO pay high because it benefits everyone in the club."

Which again makes no sense because were' only talking about the CEOs of the largest firms here. If you included...all CEOs...of all firms, the difference in pay between them and the average employee would be about...3x. Hardly worth discussing.

I.e., you'd expect the same phenomenon to happen for CEOs at all companies, not just the largest companies.

" That doesn’t mean that the market is perfect at always identifying the very best people"

The market doesn't have anything to do with it.

Does higher CEO pay also correlate with better firm performance? I ask because bigger firms paying CEOs more does not necessarily mean they're doing it because they have to. It could be that CEOs at bigger firms have more discretion to set higher pay-scales for themselves.

There's no easy answer to your first question, because there's no easy measure of "firm performance".

Does it "correlate" with firm performance? Probably with most measures of firm performance.

Does firm performance...cause higher pay, or vice versa? That's another question.

As for discretion: the discretion would have to be at the BOD level. The size of the firm doesn't tell us anything about what the BOD does in setting CEO pay. What's clear is that shareholders...really don't care.

PS: So if shareholders really don't care, than why do "we" care? All the "outrage" at CEO pays, by the same people who also own stock in those very same companies :)

We care because CEOs are convenient scapegoats for a certain segment dominated by liberal arts graduates earning relatively little.

This is the same as saying that larger companies produce more productivity gains than smaller companies, and are thus a bigger benefit to consumers who generally capture most of those gains.

The correct question to ask "what would happen to median living standards without the contributions of the top percentile or top decile over the past 40 years?" Too many of these studies assume the people at the top must somehow be appropriating an unfair "share" of income and then try to explain why, but generally top earners capturing a small portion of the large gains to consumers they create, which would not exist without them -- and then passing a disproportionately large portion of it to the government

You couldn't be more right. Which is why shareholders really don't care.

Which as I said above, explains why despite all the fake "outrage" by certain people, they still manage to buy themselves some shares in those very same companies. I guess, the outrage at the CEO pay, isn't enough to dissuade them from wanting a piece of the pie they create ;)

Warren Buffett was reportedly upset with the compensation package given to the latest CEO of Coca-Cola but declined to press the issue. Evidently, paying the guy beaucoup dinero makes more people drink Coke products, which is the piece of the pie he creates.

So he didn't care enough to do anything about it. Got it.

Seriously, you must live in another planet, if you think that CEO's are "victims" of the "evil" tax collecting government.... And if you think that they get their fair share, then you really have no idea what capitalism is all about...

https://owl.english.purdue.edu/owl/resource/577/01/

A "small portion?" Mean income data tells another story:

https://rortybomb.files.wordpress.com/2012/01/mean_income_by_fifth.jpg

That's a graph of income, gains to consumers are something different. See here.

http://www.forbes.com/sites/timworstall/2013/08/11/walmart-destroys-jobs-yes-but-the-benefits-go-to-consumers-not-the-top/

The reason competition works is that consumers will generally not make a trade that leaves them worse off. So it's really not surprising that the creation of wealth through free markets generally requires providing many times the amount of value than is kept.

"The final result of that paper is that the entrepreneurs, the people bringing in the new methods of doing things, get only 3% of the value that the new method creates. Finance capital gets some more of that value but the vast majority of it goes to consumers. This is the so called “consumer surplus” and it’s one of the problems with GDP figures that this is not included. "
...
The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. We first show the underlying equations for Schumpeterian profits. We then estimate the value of these profits for the non-farm business economy. We conclude that only a minuscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers.

3% isn't a "fair share". It's too much! :p

As of the moment I'm writing this, not one single comment has used the term "anti-trust". (According to my browser...I admit I have not read every word of every comment.)

Seriously??? How can you read this post and not think of anti-trust's role in a vibrant, modern, equitable-distribution economy?

But managing a multinational firm such as Walmart requires a different—and much rarer—set of skills than that required to run a corner store. Over time this pushes up the salaries of the top brass at Walmart compared with corner-shop managers.

Isn't it true that even if the set of skills are not rarer, that the bigger size of the organizations increases the leverage of executives magnifying small differences and risks leading to higher compensation for those in the top jobs.

A big problem with addressing top executives' compensation is that it is such small percent of profits (3% for s & p 500 companies) that change is not worth the risk to share holders.

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