Eclipse of Rent-Sharing: The Effects of Managers’ Business Education on Wages and the Labor Share in the US and Denmark

The authors provide evidence from the US and Denmark that CEOs with a business degree (‘business managers’) reduce wages and the labor share (relative to non-business managers). Within five years of the appointment of a business manager, wages decline by 6% and the labor share by 5 percentage points in the US, and by 3% and 3 percentage points in Denmark. Firms appointing business managers are not on differential trends and do not enjoy higher output, investment, or employment growth thereafter. The authors use manager retirements and deaths and an IV strategy based on the composition of the board of directors at the time of new CEO appointments, to present additional evidence that these are causal effects. Exploiting exogenous export demand shocks, the authors establish that a key mechanism for these wage effects is changes in rent-sharing practices following the appointment of business managers and provide evidence suggesting that these effects are driven by business managers prioritizing shareholder value.