Globalization Has Made Executives Richer Than They Deserve to Be

The decades-long trend of inequality afflicting the United States basically works like this: The rich have gotten much richer, and everyone else has stayed stuck. New research will make you even less sympathetic to the motherfucking CEOs who’ve gotten very rich in the past 20 years.

A new NBER research paper looks at the effects that globalization has had on executive pay, which has been rising sharply for more than a generation, helping to drive overall economic inequality. These are two topics that have drawn a good deal of attention individually, but the way one impacts the other has been less well studied. And? The paper supports the hypothesis, so politely phrased, that “globalization might affect top incomes for reasons that are unrelated to the market talent of the executive.”

The paper’s findings, based on an analysis of the pay of thousands of executives at US companies between 1993-2013, are as follows:

Exports, a major product of globalization, “have a significant positive impact on executive compensation.”
Further analysis shows that it is not executive skill driving these earnings increases. On the contrary: “We find that bonus payments, not regular salary, are central to the export-led increase in executive compensation. Since bonus payments are by nature relatively discretionary and conducive to rent capture, this result reinforces the role of non-market channels and suggests that rent capture is important… We find exports lead to relatively large increases in bonuses in the presence of insider board relationships, at firms that face less scrutiny, and when the top marginal tax rate is lower and consequently the incentives for the executive to bargain over compensation are higher. This indicates that rent capture plays an important role in the relationship between globalization and top incomes.”

We’ve long known that a driver of inequality is “rent-seeking” behavior—which is to say, capturing unearned benefits because of your social or political position—by those at the top. The bigger picture of this particular study could be that while everyone talks about how globalization hurts workers on the low end of the earnings spectrum, by depressing their wages and forcing them to compete with low earners overseas, few people talk about how globalization has also enriched the high earners at the same companies. To be perfectly clear, this enrichment is not due to anything that executives “earn” or “deserve” in any rational sense of the word; it is due to the fact that it enables them to collect more economic “rents,” which is the opposite of what our public policy should be doing.

So this is another thing you can talk about when you talk about why the rich suck.