Kevin Drum's Contest: Explain CEO Pay

The Washington Monthly

Kevin wants to know how CEO pay (which rose 27% in 2003) fits into the law of supply and demand. Here's my entry:

CEOs who can supply large profit margins are in great demand, hence their pay is skyrocketing.

By "supply large profit margins", I mean "ax enough laborers without endangering productivity". This floods the labor market with more unemployed (greater supply), which lowers the demand for higher wages.

CEOs with the requisite lack of a soul are in short supply. That's why they're getting paid so well.