Organizations, institutions, and · Organizations, institutions, and inequality ... 4000 5000 6000...
Transcript of Organizations, institutions, and · Organizations, institutions, and inequality ... 4000 5000 6000...
Organizations, institutions, and inequality Jerry Davis The University of Michigan 12 May 2016
Where I am going to end up:
• A proximal cause of national income inequality is the “demography” of employing organizations in an economy – Most people derive most of their income from
employment by organizations – The morphology of organizations (size, levels of
hierarchy, promotion ladders) ~determines income distributions
• A distal cause is the institutional ecosystem that shapes how organizations are structured
• This stuff is changing, and it won’t be pretty
How sociologists have studied inequality (cartoon version)
• Individuals (1960s-1970s): what accounts for individual socio-economic attainment? – Typical study: self-reported income = f(sex, race, education,
occupation, mother’s education); latter variable represents “inter-generational transmission”
– Critique: attainment happens within organizations, not in “society” (e.g., Baron & Bielby, 1980)
• Organizations (1980s-2000s): what explains variation in hiring practices and career ladders in organizations? – Typical study: compare ILMs or prevalence of women/minorities
in management across firms – Critique: too coarse-grained; insufficient data
How sociologists have studied inequality (cartoon version)
• Institutions (now): how do institutional configurations shape income and mobility within and across organizations? – How do cities’ politics, norms, business cultures, and elite
networks influence occupational segregation and attainment? (Stephens, 2013)
– How do national institutions shape what a “corporation” is and how it affects income inequality? (Cobb and Davis, ongoing…)
HOW CAN ORGANIZATIONS “CAUSE” INEQUALITY?
The paradox of inequality and corporate size
Employment concentration = Surprising finding: there is a very high correlation between
employment concentration using the 10 biggest firms and using the 25, 50, or 100 biggest firms in the US.
The corporate “tendency toward gigantism” is evident even with a relatively thin slice of data.
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Number of workers employed by n largest firms Total labor force
U.S. income inequality and 10-firm employment concentration, 1950 - 2008
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3236
4044
48Gi
ni Co
effici
ent
02
46
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Ratio
of T
op 1
0 Em
ploye
rs to
Lab
or F
orce
1950 1960 1970 1980 1990 2000 2010Year
Employment Concentration Income Inequality
r = -.89
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Income inequality and employment concentration by year, 1950 – 2006
1950
19511952
1953
1954
1955
19561957
1958
1959 1960
1961
19621963 1964
1965
1966
1967
1968
19691970
19711972
1973
197419751976
19771978
19791980
1981
19821983
1984
1985
1986
1987 1988
1989
1990 1991
1992
19931994
19951996
1997
1998
19992000
2001 20022003
2004
2005
2006
3840
4244
46
Gini
Coeff
icien
t
3 3.5 4 4.5 5% Employed by 10 Largest Firms
The 60s: Conglomerate mergers increase concentration; inequality declines
The 80s: bust-up takeovers split conglomerates back into parts; inequality increases
The 90s: quest for shareholder value induces downsizing, outsourcing
Why did firms want to be big?
Robin Marris, The Economic Theory of ‘Managerial’ Capitalism (1964):
“The main concluding theorem is that the various pressures mentioned above lead managers to maximise the rate of growth of the firm they are employed in subject to a constraint imposed by the security motive…We represent the former by the growth rate of gross assets and the latter by the valuation ratio.”
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Why did they change their minds?
• Orientation toward share price leads companies to adopt strategies and structures valued by financial markets
• Market-approved strategies include: – Pervasive outsourcing (“Nike-fication”) – Employment minimization – Domain-shopping for tax havens – Stock buybacks
• Widespread orientation toward share price, as in the US, mutes growth in assets and employment
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A case study
• In 1996, Sara Lee was #50 on the Fortune 500 list of the largest American corporations
• Its brands included: – Hanes – Coach – Champion – Wonderbra – Jimmy Dean – Ball Park – Douwe Egberts – …and dozens of others
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The move toward shareholder value
• “Sara Lee Corporation's mission is to build leadership brands in consumer packaged goods markets around the world. Our primary purpose is to create long-term stockholder value.”
• “Wall Street can wipe you out. They are the rule-setters. They do have their fads, but to a large extent there is an evolution in how they judge companies, and they have decided to give premiums to companies that harbor the most profits for the least assets.”
John Bryan, CEO, explaining Sara Lee’s "de-verticalization" program
• 2012: after 15 years of shareholder-oriented restructurings and spinoffs, what was left of Sara Lee split into Hillshire Brands (US) and Douwe Egberts Master Blenders (Europe)
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The employment consequences of Sara Lee’s pursuit of shareholder value
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0
20
40
60
80
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Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Employment at Sara Lee (thousands), 1995-2012
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The era of giant employers is over in the US
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100
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800
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Year
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24
1926
19
28
1930
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32
1934
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1938
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40
1942
19
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1946
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48
1950
19
52
1954
19
56
1958
19
60
1962
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64
1966
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68
1970
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72
1974
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1978
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80
1982
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84
1986
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1990
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1994
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1998
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2006
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08
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Employment at GM, 1923-2011
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The largest US employers have shifted from manufacturing to retail and other services
1960 GM AT&T FORD GE US STEEL SEARS A&P EXXON BETH. STEEL ITT
1980 AT&T GM FORD GE SEARS IBM ITT KMART MOBIL GTE
2010 WAL-MART TARGET UPS KROGER SEARS HLDGS “AT&T” HOME DEPOT WALGREEN VERIZON SUPERVALU
10 Largest US Corporate Employers, 1960-2010
Wal-Mart now employs roughly as many Americans as the 20 largest manufacturers combined
Manufacturing Oil Services
IS THIS JUST A U.S. THING?
Around the world, big employers are associated with low inequality (ca. 2006)
Canada
United States
Australia
New Zealand
Cote d'IvorieCameroon
AlgeriaEgypt
Ghana
Morocco
Senegal
Tunisia
South Africa
Zimbabwe
China
Indonesia
India
Japan
S Korea
Sri Lanka
Malaysia
Philippines
SingaporeThailand
Bulgaria
Belarus
Czech Rep
Croatia
Hungary
Poland
RomaniaSerbia
Russian Federation
Slovenia
Slovakia
Ukraine
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Venezuela
Denmark
FinlandIceland
Norway Sweden
Austria
BelgiumSwitzerland
Germany
Spain
France
United Kingdom
GreeceIreland
Italy
Netherlands
Portugal
Turkey
2030
4050
60
Gini
Coeff
icien
t
0 5 10 15 20 25 30 35Ratio of Top 10 Employers to Total Labor Force
Asia Alley
Old Europe
Nordic Niche
Commie Corner
Latin Quarter
North North America
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Employment concentration: Colombia vs. Denmark, 2006
COLOMBIA DENMARK
Company Name Industry Class Employees Company Name Industry Class Employees
BANCOLOMBIA SA BANK 7,027 ISS AS INDUSTRIAL 273,534
INVERALIMENTICIAS SA INDUSTRIAL 6,798 GROUP 4 AS INDUSTRIAL 246,366
TEXTILES FABRICATO TEJICONDOR INDUSTRIAL 5,744 A.P. MOLLER-MAERSK A/S TRANSPORT. 62,300
BANCO DE BOGOTA SA BANK 4,800 CARLSBERG AS INDUSTRIAL 31,703
SURAMERICANA DE INVERSIONES S. OTH FINANCIAL 4,325 TDC AS UTILITY 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 DANSKE BANK AS BANK 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
40,954 Total 708,561
Labor Force 22,771,433 Labor Force 2,834,422
Emp Concentration 0.18% Emp Concentration 25.00%
The five biggest employers in…
Dominica #EmpChina #Emp US #Emp Denmark #Emp Brazil #Emp Bangladesh#Emp
JASTAPHAN&CO. 350
PETROCHINACOMPANYLIMITED 534652
WAL-MARTSTORES 2200000ISSA/S 522258
ITAUUNIBANCOHOLDINGS 93175JANATABANK 14413
HHVWHITCHURCHANDCO 220
AVIATIONINDUSTRYCORP 500000
USPOSTALSERVICE 488000
APMOLLER-MAERSK 89209
PETROLEOBRASILEIRO 80908
ZAHINTEXINDUSTRIES 13400
DOMINICAELECTRICITYSERVICES 219
AGRICULTURALBANKOFCHINA 493583KROGERCO 400000NOVONORDISK 51059VALES.A. 76531
BANGLADESHEXPORTIMPORTCO 7852
NATIONALBANKOFDOMINICA 149
INDUSTRIAL&COMMERCIALBANKOFCHINA 462282
HOMEDEPOTINC 371000CARLSBERGA/S 46832
MARFRIGGLOBALFOODSS.A. 45243PUBALIBANK 7645
FINEFOODSINC. 130
CHINACONSTRUCTIONBANK 372321TARGETCORP 347000
LUNDBECKFONDEN 32135
TELEFONICABRASILS.A. 26598
ADVANCEDCHEMICALINDUSTRIESLIMITED 6930
And now, the part where institutions become relevant
Gnomic research question:
How are corporations like breakfast?
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Institutional domains that shape corporate structures
• Product market competition • Labor market regulation • Capital market structure • Education systems • Social welfare provision (health care, retirement)
What should an auto company board look like?
“An organization must have an elite structure of such a form and character that those people in the society who control resources essential to that organization’s success will be satisfied that their interests are represented in the goal-setting apparatus of the enterprise…” (Stinchcombe, 1965)
– GM: 11 directors, one GM manager (CEO) – Daimler: 20 directors, 3 Daimler managers, 10 labor
representatives – Toyota: 21 directors, 15 current or former Toyota
managers – Geely: 13 directors, 8 Geely managers
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Bruno Amable’s varieties of capitalism
• Market-based: USA, UK, Canada and Australia
• Social-democratic model: Sweden, Finland and Denmark
• Continental Europe: France, Germany, Austria, Belgium,
Ireland, Norway (Switzerland and Netherlands)
• Mediterranean: Italy, Spain, Portugal and Greece
• Asian model: Japan and South Korea
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Income inequality and varieties of capitalism
Australia
Canada
United Kingdom
United States
Japan
South Korea
Denmark
Finland
Sweden
Austria
BelgiumFrance
Germany
Ireland
Netherlands
Norway
GreeceItaly
Portugal
Spain
2530
3540
45
Gini
Coe
fficie
nt
0 5 10 15 20 25
Ratio of Top 10 Employers to Labor Force
Social Democratic
Continental Europe
Market Based
Asia
Mediterranean
2025
3035
40
Ineq
ualit
y (G
ini c
oeffi
cien
t)
1960 1970 1980 1990 2000 2010Year
SWE DNK
FIN
2025
3035
40
Ineq
ualit
y (G
ini c
oeffi
cien
t)
1960 1970 1980 1990 2000 2010Year
JPN KOR
2025
3035
40
Ineq
ualit
y (G
ini c
oeffi
cien
t)
1960 1970 1980 1990 2000 2010Year
DEU FRA
BEL
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Income inequality and varieties of capitalism
2025
3035
40
Ineq
ualit
y (G
ini c
oeffi
cien
t)
1960 1970 1980 1990 2000 2010Year
ITA PRT
Asia Continental Europe
Social democratic
Mediterranean
Note the eerie “millennial convergence”
WHAT HAPPENS IF “FIRMS” DISAPPEAR?
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The number of public corporations in the US has dropped by over half since 1997
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Source: World Bank World Development Indicators 2014
3000
4000
5000
6000
7000
8000
9000
10000
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US listed companies
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The “going public” fad of the 1990s is long gone
Source: Jay Ritter, University of Florida
0
100
200
300
400
500
600
700
800
IPOs per year, 1980-2014
And the companies that go public have “dual class voting rights” that guarantee founders eternal control
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Ironwood Pharmaceuticals Inc Groupon Constellium NVCrude Carriers Corp Manning & Napier RCS Capital CorpMaxLinear Inc Zynga Coty IncFirst Interstate BancSystem In Renewable Energy Group Truett-Hurst IncDynaVox Inc Yelp Luxoft Holding IncPAA Natural Gas Storage LP Vantiv Silvercrest Asset ManagementS&W Seed Co Digital Cinema Destinations Noodles & CoNiska Gas Storage Partners LLC Edgen Group Inc NRG Yield IncOxford Resource Partners LP The Carlyle Group LP UCP IncAmeresco Inc Tilly's Inc Jones Energy IncGreen Dot Corp Facebook Inc Intrexon CorpChesapeake Midstream Ptrs LP KAYAK Software Corp Pattern Energy GroupRhino Resource Partners LP Globus Medical Inc Premier IncBooz Allen Hamilton Holding Co Manchester United PLC RingCentralFXCM Inc Workday Inc RE/MAX HoldingsSwift Transportation Co Seadrill Partners LLC LDR HoldingAdecoagro SA The WhiteWave Foods Co Veeva SystemsMagnaChip Semiconductor Restoration Hardware Hldg Inc JGWPT Holdings LLCApollo Global Management PBF Energy Inc ZulilyGNC Holdings Zoetis Inc AMC Entertainment HoldingsTMS International Health Ins Innovations Inc EP Energy CorpArcos Dorados Holdings Artisan Partners Asset Mgmt In Malibu BoatsBox Ships Inc Taylor Morrison Home Corp uniQure BVAir Lease Corp Fairway Group Holdings Corp Ladder CapitalLinkedIn Corp Blackhawk Network Holdings Inc Lumenis LtdYandex NV PennyMac Finl Svcs Inc Castlight Health IncKiOR William Lyon Homes Inc Phibro Animal Health CorpZillow Tableau Software Inc Moelis & Co LLC
Source: Jay Ritter, University of Florida
Nobody actually works at these new companies, and most will not last long
Company Employees (year-end 2015) Zynga 1669 LinkedIn 9372 Groupon 3846 (North America) Zillow Group (Zillow + Trulia) 2204 Yelp 3826 Facebook 12,691 Tableau 3008 Zulily 2907 Box 1370 TOTAL 40,893
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Circuit City employees in 2008 (US): 42,974 Source: 10-K statements via EDGAR
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After Nikefication: Uberization
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As of Sept. 2015, Uber has ~4000 employees and 327,000 “driver-partners” in the US
Source: Hall & Krueger, 2015
Tentative factoids
• Corporate size varies widely and systematically around the world, both in absolute terms and relative to the size of the labor force
• Corporate employment concentration is positively related to equality – Very strongly in the US (over time) – Somewhat strongly around the world (cross-sectionally)
• The size of a country’s largest corporations and its level of inequality are connected to its “variety of capitalism” (VOC)
• A possible (fuzzy) causal chain: – VOC=>concept of corporationà corporate sizeà inequality
PARKING LOT
What’s next in the US? Top 4 post-IPO job creators since 2001
• GameStop (57,500 net jobs since 2002) “Each of our stores employs, on average, one manager, one assistant manager and between two and ten sales associates, many of whom are part-time employees…We have approximately 17,000 full-time salaried and hourly employees and between 30,000 and 48,000 part-time hourly employees worldwide, depending on the time of year”
• Stream Global Services (30,997 net jobs) “We are a global business process outsourcing (‘BPO’) service provider specializing in customer relationship management (‘CRM’) … Our service programs are delivered through a set of standardized best practices and sophisticated technologies by a highly skilled multilingual workforce with the ability to support 35 languages across approximately 51 service centers in 22 countries.”
• Brookdale Senior Living (30,640 net jobs) “As of December 31, 2012, we are the largest operator of senior living communities in the United States based on total capacity, with 647 communities in 36 states ”
• Las Vegas Sands (29,600 net jobs) “Through our 70.2% ownership of Sands China Ltd. (“SCL”), we own and operate a collection of integrated resort properties in the Macao Special Administrative Region (“Macao”) of the People’s Republic of China (“China”). These properties include The Venetian Macao Resort Hotel (“The Venetian Macao”), the Four Seasons Hotel Macao, Cotai Strip (the “Four Seasons Hotel Macao,” which is managed by Four Seasons Hotels, Inc.) and the Plaza Casino…In Singapore, we own and operate the iconic Marina Bay Sands, which has become one of Singapore’s major tourist, business and retail destinations since its opening in 2010. Our properties in the United States include The Venetian Resort Hotel Casino (“The Venetian Las Vegas”) and The Palazzo Resort Hotel Casino (“The Palazzo”), Five-Diamond luxury resorts on the Las Vegas Strip, as well as the Sands Expo and Convention Center (the “Sands Expo Center”) in Las Vegas, Nevada and the Sands Casino Resort Bethlehem (the “Sands Bethlehem”) in Bethlehem, Pennsylvania.”
What do people do when they study inequality?
• Poverty: why are some people or groups poor? Why do some countries have higher poverty rates than others?
• Mobility: how do some people become (or stay) rich? Why do some societies have higher class mobility than others?
• Global inequality: why are some nations consistently richer than others? What accounts for different trajectories of GDP growth?
• Comparative inequality: why do some nations have greater internal inequality of income (or wealth)? What accounts for national trends in income distributions?
A matrix of possible topics
• Units of analysis – Countries (within or across) – Organizations (within or across)
• Measures – Concentration (the 1%)
§ Income (static vs. trajectory) § Wealth (static vs. trajectory)
– Distribution § Income (static vs. trajectory) § Wealth (static vs. trajectory)
• Divides – Race – Sex