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Do Changes in Wealth Inequality Help Explain CEO Compensation Inequality? A Study Using the Pareto Distribution

Blackwell, Calvin, Graefe-Anderson, Rachel and Vaught, Dyanne

posted on 13 September 2012

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Over the past twenty years there has been a dramatic increase in both CEO pay and the wealth of the richest Americans. We hypothesize that the increase in CEO pay is due to the same economy-wide factors that have increased the asset value of the wealthiest Americans. We test this hypothesis by estimating Pareto distributions for both CEO compensation and the Forbes 400 list of the wealthiest Americans and then comparing the behavior of these distributions over time. We find that the Forbes 400 distribution changes little over time, while CEO compensation changes significantly. We find no evidence for the hypothesis that these two distributions move together.