This paper investigates non-cyclical, short-run relationships between income distribution and the components of aggregate demand in the US from 1963–2016. Previous studies using this ‘structural’ methodology have typically found that demand is wage-led in most large, advanced economies. However, these studies have been criticised for treating total output and the wage share as exogenous, potentially leading to simultaneity bias. This paper corrects for such possible bias as well as common shocks to the equations by using systems GMM. Surprisingly, these estimates imply that private-sector aggregate demand is more, rather than less, wage-led (or in some cases, less profit-led) compared with OLS estimates of identically specified models. This paper is also the first to provide separate estimates of non-residential and residential investment functions and to distinguish the effects of shocks to different underlying determinants of the wage share (unit labour costs and firms’ monopoly power), finding that these differ qualitatively.
This paper revisits the determinants of CEO compensation using recent data (covering 125 firms from 2003 to 2012). We focus in particular on how CEO pay changed after the 2008 financial crisis. Post-crisis, the composition of pay shifted away from cash toward equity. Furthermore, post-crisis pay is tied more closely to performance and less closely to factors (like firm size) that are more tenuously connected to shareholder value. We also investigate the impact of mergers and divestitures on CEO pay, overall and before and after the crisis. Finally, we consider the role that board composition plays in CEO compensation and find that CEOs take larger post-crisis pay cuts when they have more employees on their boards.
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From mid-2014 to 2016, oil prices plunged rapidly causing significant volatility in the US and global equity markets. This change in crude oil prices occurred after a significant run up in oil prices three to four years earlier. Each change in the growth trajectory of oil prices affects stock market returns. How and why do oil price shocks affect the expected stock market returns among key sectors of the economy? This paper explores this issue by examining how the magnitude of crude oil price changes affects the stock market returns and variances of key producing, banking and consuming segments of the US economy. Our findings provide some explanations for the asymmetric responses to positive and negative oil shocks found in these key sectors of the economy.
Rent-seeking behavior is when individuals or firms acquire above-market returns by exercising economic and political power. We introduce an active-learning exercise, with discussion questions and extensions, to illustrate implications of rent seeking for efficiency, equity, economic justice, and democracy. Students act as corporate decision makers allocating resources among physical, financial, and political investment. Instructors use the results to highlight distinctions between productive and nonproductive activities, and ways in which individual firm incentives may differ from socially optimal firm behavior. This allows for discussions of broader issues, such as how rent seeking can undermine democratic ideals and perpetuate inequality.
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