New Money in the New Economy: The Shift to Stock Compensation and U.S. Wealth Inequality, 1998-2019

Angelina Grigoryeva, University of Toronto

This study identifies a novel explanation for growing wealth disparities in the United States, namely, the important role of stock compensation in wealth accumulation. In recent decades, American employers increasingly provided workers with compensation based, in part, on company stock, and it now accounts for 22 percent of private-sector employees. Compared to regular cash pay (e.g., wage), stock compensation may facilitate greater wealth accumulation due to the equity premium it carries, additional capital income through dividend payments, and more favorable tax treatment. Consistent with this argument, difference-in-differences analysis of the 1998-2019 Survey of Consumer Finances data finds that employees with stock compensation own more wealth than employees without stock compensation, ever after controlling for total earnings. The wealth gap widened over time, except during the Great Recession. Additionally, results suggest that stock compensation socializes employees into greater stock market participation (beyond employer stock), thus further enhancing wealth-building. Finally, I show that stock compensation is concentrated among employees already characterized by sociodemographic attributes conducive to wealth accumulation. Together, the findings suggest that the shift to stock compensation contributed to growing inequality by facilitating wealth-building among the already more advantaged.

No extended abstract or paper available

 Presented in Session 73. Financial Markets