These Unequal States: Corporate Organization and Income Inequality across the United States

• In Event: 047 - Section on Inequality, Poverty and Mobility Paper Session. Inequality, Poverty, and Mobility

Abstract

Focusing on US states, we examine the connection between changes in corporate organization and rising income inequality. We argue that organizational restructuring events occurring between the 1980s through the present led the largest firms to become smaller and more specialized in the skills they demand. This led to fewer workers being employed in the largest firms that rely, at least in part, on administrative rules and bureaucratic policy to compress wages in order to maintain norms of equity within the firm’s boundaries. Moreover, corporations becoming more specialized in the skills they demand, aided by outsourcing and offshoring, has important consequences for job matching and thus the types of returns workers can demand for their skills. The result has been increasing wage dispersion in broader population. Using time-series, cross-section data at the state level, our analysis shows that as the largest firms in a state become smaller relative to the labor force, as the diversity of occupations in the state declines, and as the diversity of occupations within the largest firms in a state declines, levels of income inequality are exacerbated. Net of conventional explanations, including educational attainment, declining unionization and employment in manufacturing, political party influence, and tax and minimum wage rates, the effects of corporate organization are substantial. These results point to the importance of considering demand-side influences on the dispersion of wages in a population.

Authors

• Joel Adam Cobb, University of Pennsylvania

• Flannery G. Stevens, University of Utah