Cobb & Stevens (2017). These Unequal States: Corporate Organization and Income Inequality in the United States

J. Adam Cobb – University of Pennsylvania
Flannery G. Stevens – University of Utah

Lindsey Cameron – University of Michigan Ross School of Business
Shauna Dyer – University of Michigan Department of Sociology

Article link:

Question 1. Drawing on theories of social comparisons and firm boundaries, this article compellingly argues that corporate organizations are drivers of income inequality at the state level. It finds that state levels of income inequality increases as fewer individuals in the state are employed by large firms, and that this negative relationship weakens when firms are more racially diverse. This article is timely given the rise of inequality across the world, especially in the US. What drew your interest to this topic, in general, and specifically to collaborate together on this project?

(Adam Cobb) As a doctoral student, I worked with my (erstwhile) advisor, Jerry Davis, on a project where we made the argument that there was likely an inverse relationship between large-firm employment and wage inequality. From my recollection, the genesis of the project came from some arguments he posed in his book, Managed by Markets, where Jerry suggested that the demise of internal labor markets cut off an important pathway for upward mobility for many individuals. It was at that time where I began to become engaged in the study of wage inequality with a specific interest in how the structure of corporate organizations might influence how wages are distributed within a labor market. Several scholars had suggested a linkage but there was little empirical work at that time (Sorensen and Sorensen, 2007 being a notable exception) and I really wanted to push the idea forward and see if there was a way to better connect organizational theory to sociological inquiries of labor markets.

Flannery and I have known each other since the start of our doctoral studies at the University of Michigan, and it was fortuitous for me that she had access to data provided by the Equal Employment Opportunity Commission that allowed us to operationalize “large-firm employment” at a labor-market level (in our case states). The collaboration was borne, in part, because she had access to that data, but also because we knew each other well enough that we figured we could collaborate nicely on a big project like this one. Moreover, Flannery has an interest and a deep expertise in issues of racial diversity, so we were able to combine our overlapping interests to explore questions that are central to both of our research interests.

(Flannery Stevens) While Adam and Jerry were exploring the relationship between large-firm employment and wage inequality, I was developing an interest in how characteristics of geographic communities within the United States might influence levels of racial and gender inequality within organizations. Adam’s interest in teasing apart if, and how, corporate organizations influence the distribution of wages in a labor market provided an opportunity for us to merge our research interests and, for the first time, to work together (after sharing an office for five years during our doctoral program).

Question 2. We were surprised much like you were (as well as somewhat disheartened) by your finding that income inequality in a state increases as the racial diversity of large firms in a state increases. You suggest that there is not the same kind of pressure upon diverse firms in comparison to racially homogeneous firms to compress wages. Do you think there might be a similar relationship between gender and wage compression?

(AC) If my memory serves me correctly, we did look at gender, but we did not get a clear pattern of results. However, my expectation is that many of the same dynamics would apply to gender as to race. In fact, in a study I’m working on now at the group-level of analysis I do find evidence that employee responses to pay differentials vary depending upon both the racio-ethnic and gender composition of work groups.

Question 3. As you note the US economy has undergone a significant transition with the largest employers in the retail sector and a rise in pay-for-performance schemes. Since 2005, the number of workers in alternative work arrangements has more than doubled (Katz and Krueger, 2016). If you had (hypothetically) data from 2005 – 2025, would you make the same set of hypothesis? Overall, how do you think these changing employment practices will affect inequality in the US and what actions could firms take to mitigate increases in inequality?

(AC) My expectation is that going forward that the effects we observed in this study will disappear. That is, I don’t believe that large firms are compressing wages to the extent that they did before. In fact, in a forthcoming paper with my co-author, Ken-Hou Lin from the University of Texas, we find evidence of this fact – the wage premiums that low- and mid-wage workers received from working for large firms have declined rapidly while the premiums for high-wage workers have remained unchanged. If I were to be really bold, I’d contend that the effects are likely to flip and that large-firm employment may actually exacerbate wage inequality one decade from now. Changes in the way in which firms set pay (e.g., using more pay-for-performance schemes) and the spread of non-standard work arrangements disproportionately and negatively affect low- and mid-skill workers. So, my outlook isn’t a terribly rosy one to be sure.

Question 4. On a related note, based upon your research, do you think that there is anything states can do to mitigate rising inequality as it relates to firm level wage setting beyond increases in the minimum wage?

(AC) There are a number of policy initiatives states could employ, potentially. Although I’m not an expert in the efficacy of such policies, minimum wage increases, progressive taxation, investments in education and re-education, and potentially others are all things that could be used to mitigate rising wage inequality at the municipal and/or state level.

Question 5. This is a very interesting extension of the work of Davis and Cobb (2010) and others on the consequences of shareholder capitalism. Are there other areas in need of exploration that can help us further understand the significant and apparently damaging effects of this recent economic transformation?

(AC) There has been a lot of really interesting work on the role of financialization on the economy. Jerry, of course, has been a thought leader on the topic. Others like Donald Tomaskovic-Devey and Ken-Hou have made some excellent strides as well and have provided important empirical traction on the topic. Personally, I’d like to work on (or see someone else work on) connections between financialization and individual mobility. I also think there is room for studies on how financialization of the economy directly affects public policy outcomes.

Question 6. There are particular moments throughout the course of a project that get us very excited about our papers— getting access to really interesting data, uncovering an interesting finding, or getting positive feedback from an admired scholar, et cetera. What was one of your favorite moments from working on this project? What did you two learn from each other while working together?

(AC) I was very excited when I found out that we won the OMT best paper award for a relatively early draft of the paper. Admittedly, however, I probably got a bit too optimistic about just how good the paper was at that time. But we got excellent comments and critiques throughout the process from our friendly reviewers and various conference attendees. We were also very fortunate to have three very supportive reviewers and a great associate editor in Forrest Briscoe. Their comments improved this paper beyond what I imagined that it could be from that first draft. They really encouraged us to improve the paper and to meet those goals I know I personally had to improve my skills in every aspect of the research process. They were kind enough to help show us the way and I was happy that Flannery and I were able and willing to rise to the challenge.

One thing I always try to remind myself of is that research is hard. And we had to really push ourselves to get this paper where it needed to be in order for it to be published by ASQ. So when this paper finally made it into print, I think we both felt a deep sense of accomplishment. But there were two other very happy moments for me in this project. The first occurred when we finally had the data put together and ready for analysis. Running those early models and seeing that we had preliminary results was a big relief and I was glad to know that our logic was supported by the data.

The other very happy moment occurred several months before the paper was finally accepted when one of my toughest critics (who also happens to be a wonderfully generous colleague who gives some of the best feedback of anyone I’ve ever met) told me, “It’s a really good paper and you should be proud.” It was then when I knew the paper was good!

(FS) I wholeheartedly agree with Adam about what amazing, constructive feedback we received from Forrest and our three reviewers, in addition to that provided by a number of colleagues as we presented the paper a number of times. Another favorite moment was that Adam and I worked together for the first (and hopefully not last) time. As we mentioned, we know each other well and developed a friendship while going through the trenches together as doctoral students; this project was a nice opportunity for us to add another dimension to our friendship.

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