Income inequality in the U.S. • The proportion of the nation’s income going to the top 1% has reached levels not seen since the eve of the Great Depression

Corporations and economic inequality around the world: The paradox of hierarchy

– – – – –

1929: 18.4% 1950 11 1950: 11.4% 4% 1970: 7.8% 1990: 13.0% 13 0% 2007: 18.3%

• What explains this trend?

Jerry Davis Adam Cobb © 2010 by The Regents of The University of Michigan • All Rights Reserved

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An organizational explanation

Increasing inequality in the U.S. • One economic explanation focuses on technology-driven changes in the mix of skills required by the economy –

• Our motivating question: –

Widens the wage gap between those who have these skills (e.g., computer literate college graduates) and those who do not

• We propose that two interrelated mechanisms are proximal causes of the radical increase in inequality in the US since the 1980s – –

BUT …

• Cross-national comparisons do not support this explanation –

Can organization g theory y help p explain p social inequality? q y

Shift Sh f from f manufacturing f to services Finance-driven corporate restructuring  Large g conglomerate g firms broken upp in the 1980s  Continued through the 1990s as announcements of acquisitions, spinoffs, and other restructurings in the 1990s were inevitably accompanied p byy a nod to Wall Street

E.g. Japan and the Nordic countries are among the most equal nations on earth, yet are also among the most technologically advanced

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E.g. Shin (2010) found that firms adhering more closely to the dictums of profit-maximization were more likely to engage in corporate downsizing

4

The largest US employers have shifted from manufacturing to retail and other services

The Service Shift (TM Bob Kennedy): Percentage of U.S. Labor Force Employed in Manufacturing and Services, 1938-2008 .8

10 Largest US Corporate Employers, 1960-2009

0

.2

.4

.6

1960 GM AT&T FORD GE US STEEL SEARS A&P EXXON BETH. STEEL ITT

1940

1950

1960

1970

1980

1990

2000

2010

Year % Labor Force in Manufacturing

% Labor Force in Services

1980 AT&T GM FORD GE SEARS IBM ITT KMART MOBIL GTE

Manufacturing

Oil

2009 WAL-MART TARGET UPS KROGER SEARS HLDGS “AT&T” HOME DEPOT WALGREEN VERIZON SUPERVALU

Wal-Mart now employs roughly as many Americans as the 20 largest manufacturers combined

Services

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Retail jobs are not like manufacturing jobs

• Median hourly wage in “Motor Vehicle Manufacturing” for “P d i Occupations” “Production O i ” (May 2008) : $27.14 • Median tenure with current employer in “Transportation Equipment Manufacturing” (Jan 2004 CPS): 8 years (Jan.

• Median hourly wage in “General Merchandise Stores” f “Sales for “S l and d Related R l d Occupations” (May 2008) : $9.33 • Median tenure with current employer in “Retail Trade”: 3 years • Mean weekly hours worked at Wal-Mart: 34 • Estimated annual turnover at Wal-Mart: 40%

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How do we operationalize “restructuring”? • Our hypothesis is that finance-driven restructuring fundamentally altered the employment relationship • The most direct way to analyze the effect of restructuring at a societal level is by examining the relative size of the largest employers in a nation • Employment concentration = Number of workers employed by n largest firms Total labor force

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Percentage of U.S. Labor Force Employed by Top 10, 25, 50, and 100 Employers, 1950-2008

10

15

How do we measure inequality? The Gini coefficient

0

5

The top 10 employers provide a reliable “thin slice” of broad employment trends 1950

1960

1970

1980 Year

1990

2000

% Employed by 10 Largest Firms

% Employed by 25 Largest Firms

% Employed by 50 Largest Firms

% Employed by 100 Largest Firms

2010

• Measures the extent to which the distribution of income ((or consumption) p ) among individuals (or households) deviates from a perfectly equal distribution – –

The percentage of area that lies between the Lorenz curve and a line of perfectly equality Varies between 0 (p (perfect equality) q y) and 1 (perfect inequality)

• Household, gross monetary income was used d iin allll calculations l l ti

9

10

11

12

Why should we care? • The study of inequality is a central concern of social theory – –

Blau & Duncan (1967) Baron & Bielbyy ((1980))

• And inequality has been found to be linked to numerous social ills (Wilkinson & Pickett, 2009)

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Income Inequality and Employment Concentration by Year, 1950 – 2006 2003 2001

2004

2002

2005

1997

2000 1999 1994 1993 1996 1995

2006

The 90s: quest for shareholder value induces downsizing, outsourcing

Gini Coefficient 42

1992

1989 1990 1987

32

1986

1970

1980 Year

1990

Employment Concentration

2000

1963

1985

1958

2010

1953 1955 1957 1965 1956 1966

1964 1951

1952

The 60s: Conglomerate mergers increase concentration; inequality declines

1983 1982

The 80s: bust-up takeovers split conglomerates back into parts; inequality increases

1981 1980

1979 1978 1977 1976 1975

1972

1967

1971 1974 1968

1973 1970 1969

38

1960

1954 1960 1962

1959

1984

40

2 1950

1961

1950

1991 1988

36

4

40

r = -.89 .89

cient Gini Coeffic

44

6

44

1998

0

Top 10 Employe ers to Labor Forc rce Ratio of T

46

8

48

Income Inequality and Employment Concentration, 1950 - 2008

3

Income Inequality

3.5

4 % Employed by 10 Largest Firms

4.5

5

17

Time-series regression estimates of Income Inequality in the U.S., 1950-2006

Is this just the decline of unions? 48

35

Inequality and Union Density, 1950 – 2006

Variables

Model 1

Unemployment (%)

NO: union density has declined every year since 1958 ( (almost) )

.106

-.024

.032

Employment Concentration (%)

-2.947***

.387

Constant

56.795***

1.216

Union Densityy (%) ( )

32

15 1950

1960

1970

Union Density

1980 Year

1990

2000

2010

As of Jan. 2010, most union members are public employees

Standard Error

-.551***

36

20

25

40 Gini Coeffic cient

44

30 0

Coefficient

10

onized Workers s to Total Labor Force Ratio of Unio

18

*

p < .05; ** p < .01;

***

Observations

57

R2

.7571

p < .001

Tests are two-tailed

Income Inequality

19

20

Cross-National Comparison of Income Inequality and Employment Concentration

The paradox of hierarchy

60

• Our findings reveal a paradox:

South Africa

–

Large bureaucracies are the defining structures of inequality

–

Inequality is greater within large corporations than within small ones (Kalleberg & VanBuren, 1994)

Brazil Chile Peru

50

Zimbabwe Malaysia

Asia Alley

40

nt Gini Coefficien

China Mexico Philippines Cameroon Cote d'Ivorie Turkey Thailand

30

S Korea

Greece

Old Europe United Kingdom Switzerland

Ireland

Spain

Belgium

Canada Ukraine Bulgaria

Romania Belarus Hungary Czech Rep

North North America Singapore

Senegal United States Ghana Sri Lanka Russian Federation Tunisia Morocco Portugal India New Zealand Italy Algeria Australia Poland gyp Egypt Indonesia

Why?

France Netherlands

Croatia

Serbia

Slovenia Austria Germany Slovakia

Nordic Niche

Finland

N Norway

Iceland

Denmark

Sweden

Japan

The trend toward flattening hierarchies limits the promotion prospects for those in management, and networks of contractors form no clear upward ladder for individual workers

Commie Corner

20



Argentina

Venezuela

BUT … – Societies in which employment p y is more concentrated within these hierarchies are more equal than those with dispersed employment –

Latin Quarter Colombia

0

5

10

15

20

25

30

35

Ratio of Top 10 Employers to Total Labor Force

21

For you to consider and discuss

Employment concentration: Colombia vs. Denmark COLOMBIA Company Name BANCOLOMBIA SA

DENMARK

Industry Class Employees BANK

7,027

Company Name ISS AS

Industry Class

273,534 246 366 246,366

INVERALIMENTICIAS SA

INDUSTRIAL

6 798 6,798

GROUP 4 FALCK AS

INDUSTRIAL

TEXTILES FABRICATO TEJICONDOR

INDUSTRIAL

5,744

A.P. MOLLER-MAERSK A/S

TRANSPORT.

62,300

BANCO DE BOGOTA SA

4,800

CARLSBERG AS

INDUSTRIAL

31,703

SURAMERICANA DE INVERSIONES S. S

BANK OTH FINANCIAL

4 325 4,325

TDC AS

UTILITY

20 573 20,573

CIA COLOMBIANA DE TEJIDOS - CO

INDUSTRIAL

3,435

NOVO NORDISK AS

INDUSTRIAL

20,285

ACERIAS PAZ DEL RIO S.A.

INDUSTRIAL

2,834

DANFOSS AS

INDUSTRIAL

17,543

BAVARIA SA

INDUSTRIAL

2 729 2,729

DANSKE BANK AS

BANK

15 382 15,382

COMPANIA DE CEMENTO ARGOS S.A.

INDUSTRIAL

1,798

DANISCO AS

INDUSTRIAL

10,634

CARTON DE COLOMBIA

INDUSTRIAL

1,464

FALCK A/S

INDUSTRIAL

10,241

Total

Labor Force Emp Concentration

40,954 Total

22,771,433 Labor Force 0.18% Emp Concentration

• Should management scholars be concerned about social inequality (or is that the job of sociologists)? • If so, what could we do to address it?

Employees

INDUSTRIAL

22

708,561

2,834,422 25.00% 23

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