Firm Size Inequality, Inter-Firm Compensation Inequality and National Income Accounting When Firms Insure Workers
Event details
| Date | 17.06.2016 |
| Hour | 10:30 › 12:00 |
| Speaker | Hanno LUSTIG (Stanford University) |
| Location | |
| Category | Conferences - Seminars |
In the universe of publicly traded U.S. firms, we find that the average firm's capital share has declined over the last three decades, while the aggregate capital share has increased substantially over the same period. Our decomposition attributes this increase in the aggregate capital share to the increase in firm size inequality, resulting from increased firm-level risk, which was not offset by a commensurate increase in inter-firm compensation inequality. We use a model in which firms insure managers against firm-specific shocks as a laboratory for analyzing the impact of firm-level risk on the stationary distribution of rents. In our model, an increase in firm-level risk always increases the aggregate capital share in the economy, but may lower the average firm's capital share. Because of selection, the aggregate capital share reported in national income accounts produces a biased estimate of ex ante profitability of firms which determines compensation. Managers effectively choose to pay a larger insurance premium to the owners of capital.
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