This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay changes one for one with aggregate firm size, while changing much less with the size of his own firm. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. The sixfold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies during that period. We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences.The data broadly support the model. The size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries. (JEL D2, D3, G34, J3)

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We argue that the effects of a partial reform of employment protection by allowing firms to hire workers on fixed‐term contracts may be perverse. The main effect may be high turnover in entry‐level jobs, leading to higher, not lower, unemployment. Even if unemployment falls, workers may be worse off, going through many spells of unemployment and entry‐level jobs, before obtaining a regular job. Considering French data for young workers since the early 1980s, we conclude that the reforms have substantially increased turnover, without a substantial reduction in unemployment duration. If anything, the effect on their welfare appears to have been negative.

This paper develops a simple equilibrium model of CEO pay. CEOs have different talents and are matched to firms in a competitive assignment model. In market equilibrium, a CEO's pay changes one for one with aggregate firm size, while changing much less with the size of his own firm. The model determines the level of CEO pay across firms and over time, offering a benchmark for calibratable corporate finance. The sixfold increase of CEO pay between 1980 and 2003 can be fully attributed to the six-fold increase in market capitalization of large US companies during that period. We find a very small dispersion in CEO talent, which nonetheless justifies large pay differences.The data broadly support the model. The size of large firms explains many of the patterns in CEO pay, across firms, over time, and between countries. (JEL D2, D3, G34, J3)