a1 Assistant Professor of Economics, Boston University, 270 Bay State Road, Room 307, Boston, MA 02215; and NBER. E-mail: firstname.lastname@example.org.
a2 Senior Economist, Federal Reserve Board of Governors, 20th and C Streets NW, Washington, DC 20551. E-mail: email@example.com.
Executive pay fell during the 1940s, marking the last notable decrease in the past 70 years. We study this decline using a new panel data set on the remuneration of top executives in 246 firms. Government regulation—including explicit salary restrictions and taxation—had, at best, a modest effect on executive pay. By contrast, a decline in the returns to firm size and an increase in the power of labor unions contributed greatly to the reduction in executive compensation relative to other workers’ earnings from 1940 to 1946. The continued decrease in relative executive pay remains largely unexplained.
The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. We thank our editor, Price Fishback, two anonymous referees, Claudia Goldin, Eric Hilt, Larry Katz, Bob Margo and seminar participants at Harvard University and the NBER Summer Institute for valuable comments. We are particularly grateful to Catherine Muething and Kevin Pan for excellent research assistance.