Ot - Complementar - The Managers Revenge

American Sociological Review77(2) 268 –294© American Sociological Association 2012DOI: 10.1177/0003122412440093http://asr.sagepub.com

The determinants and historical progression of managerialism and managerial intensity in for-mal organizations have long interested sociolo-gists (Bendix 1956; Guillén 1994; Weber 1978). During the early twentieth century, managers assumed control of growing corporations and built expansive, complex administrative bureau-cracies well-suited to their purposes (Berle and Means 1932). Separation of investor ownership

from management control allowed managers to insulate themselves from the discipline of the

440093 ASRXXX10.1177/0003122412440093GoldsteinAmerican Sociological Review2012

aUniversity of California, Berkeley

Corresponding Author:Adam Goldstein, Department of Sociology, University of California, Berkeley, 410 Barrows Hall, Berkeley, CA 94720-1980 E-mail: [email protected]

Revenge of the Managers: Labor Cost-Cutting and the Paradoxical Resurgence of Managerialism in the Shareholder Value Era, 1984 to 2001

Adam Goldsteina

AbstractInstitutional changes associated with the rise of shareholder value capitalism have had seemingly contradictory effects on managers and managerialism in the United States economy. Financial critiques of inefficient corporate bureaucracies and the resulting wave of downsizing, mergers, and computerization subjected managers to unprecedented layoffs during the 1980s and 1990s as firms sought to become lean and mean. Yet the proportion of managers and their average compensation continued to increase during this period. How did the rise of anti-managerial investor ideologies and strategies oriented toward reducing companies’ labor costs coincide with increasing numbers of ever more highly paid managerial employees? This article examines the paradoxical relationship between shareholder value and managerialism by analyzing the effects of shareholder value strategies on the growth of managerial employment and managerial earnings in 59 major industries in the U.S. private sector from 1984 to 2001. Results from industry-level dynamic panel models show that layoffs, mergers, computerization, deunionization, and the increasing predominance of publicly traded firms all contributed to broad-based increases in the number of managerial positions and the valuation of managerial labor. Results are generally consistent with David Gordon’s (1996) fat and mean thesis.

Keywordsfinancial capitalism, managerialism, restructuring, shareholder value

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Goldstein 269

market; this assured managerial incumbents job security, generous pay, and privileged access to internal labor markets. As a result of this institu-tional configuration, the U.S. economy saw continual increases in the ranks and rewards of managerial employees throughout the postwar era (Gordon 1996).

This all appeared to change with the share-holder value revolution and the spread of organ-izational restructuring during the 1980s and 1990s. Scholars and popular commentators her-alded the end of managerialist modes of organi-zation as a resurgent Wall Street sought to heighten profits by dismantling corporate bureaucracies and trimming the ranks and per-quisites that managers had long enjoyed in America’s large firms (Caves and Krepps 1993; Hirsch 1993). Financial critiques of bureau-cratic bloat and the resulting wave of downsiz-ing, mergers, and computerization subjected managers to unprecedented layoffs and appeared to confirm predictions that managers would eventually face the same sort of business cycle insecurity previously borne only by blue-collar workers (Osterman 1996, 2006). Analyses of displaced worker surveys confirmed that man-agers were increasingly likely to suffer layoffs during the 1980s; by the early 1990s, layoff rates for managers had nearly surpassed those for blue-collar production workers (Cappelli 1992; Gardner 1995).

But at the same time that managers came under fire, sociologists had largely abandoned their classic concern with the study of mana-gerial intensity (Baron, Hannan, and Burton 1999).1 Scholars have probed the effects of corporate restructuring and employment reor-ganization on job stability, career paths, and workplace morale, but there has been surpris-ingly little systematic research on the para-doxical fact that the shareholder value revolution failed to staunch the growth of managerial positions and pay in the U.S. economy: the proportion of managerial employees in the U.S. private sector rose steadily from the mid-1980s through the early 2000s by several different metrics. Further-more, hourly earnings for managerial incum-bents increased 34 percent at the same time

overall wages stagnated. As a result, the share of total business income devoted to manage-rial salaries actually rose from 16 to 23 per-cent between 1984 and 2001 (author’s calculation from U.S. Bureau of Economic Analysis [2010] and U.S. Bureau of Labor Statistics [2010a] data).

How do we reconcile the fact that manage-rial employment and pay continued to increase during a period when dominant institutional currents and much previous research would suggest just the opposite? In other words, how did the well-documented spread of lean and mean strategies oriented toward reducing com-panies’ labor costs and trimming corporate bureaucracies coincide with increasing numbers of highly rewarded managerial positions? Ample evidence suggests that top executives learned to re-channel the anti-managerial thrust of shareholder value pressures in self-enriching ways (Westphal and Zajac 1998), in part because executives’ own compensation became tied to their ability to cut labor costs. But it is still not clear how to square this with the improbable increases in the total number and pay of the broader class of middle-managers whom execu-tives were charged with trimming.

I assess three different possibilities. The most straightforward explanation is that shareholder value strategies did negatively impact managerial positions and pay, but these effects were outweighed by stronger countervailing pressures that caused mana-gerial employment and earnings to increase in the aggregate, such as the structural shift in the economy toward more managerially intensive service and financial industries (cf. Tomaskovic-Devey and Lin 2011). Second, an institutionalist explanation suggests share-holder value had no impact on managerial growth because its anti-managerial symbol-ism was decoupled from actual organiza-tional practice (DiMaggio and Powell 1983; Westphal and Zajac 1998, 2001). Finally, a third thesis suggests lean and mean strate-gies positively contributed to increasing managerial positions and pay by transform-ing organizational structures and employ-ment practices in ways that heightened demand



270 American Sociological Review 77(2)

for managerial labor and enhanced managers’ ability to capture rents (Gordon 1996; Meyer 2001).

I test these alternatives by analyzing the effects of prototypical shareholder value strate-gies on the growth trajectories of managerial employment and earnings in 57 major industries in the United States from 1984 to 2001. In prob-ing the relationship between shareholder value strategies and managerial growth, the analysis builds on a line of work pioneered by the late political economist David Gordon (1996). Gor-don’s study was the first to show systematically that the supposed assault on managers during the late 1980s and early 1990s actually coin-cided with continued aggregate increases in managerial employment and pay in the U.S. economy. Gordon furthermore argued that these two processes were causally related insofar as attempts to heighten efficiency by squeezing labor costs necessarily result in demand for more managerially intensive supervision. How-ever, this latter element in Gordon’s argument (the causal link between labor cost-cutting strat-egies and managerial growth) rests on shaky methodological grounds, namely aggregate time trends and cross-national correlations.

This article presents a much more rigorous test. It decomposes aggregate data to the industry-level and longitudinally analyzes effects of mergers, layoffs, computerization, deunionization, and the growing predomi-nance of publicly traded firms and institu-tional investors on managerial employment and hourly earnings. Results from dynamic panel specifications show that layoffs, merg-ers, computerization, deunionization, and the increasing predominance of publicly traded firms all contributed to broad-based increases in the number and pay levels of managerial positions in U.S. industries.

SHAREHOLDER VALUE AND REORGANIZATION OF U.S. FIRMS

The 1980s saw a revolution in corporate governance and management ideology in the

United States. A diffuse alliance of institutional investors, financial economists, investment banks, stock analysts, management consul-tants, and a new generation of financially trained executives advocated and progres-sively institutionalized a new paradigm for reorganizing large corporations’ structures and behaviors. Economic sociologists have subsumed these multifaceted changes under the rubric of the shareholder value revolu-tion. Shareholder value can be conceived of as both an epochal business ideology and a dominant institutional configuration within U.S. capitalism (Fligstein 1990, 2001). It is marked by (1) investor dominance and the use of financial markets to discipline corpo-rate activities, (2) financial conceptions of control that stress stock performance and rate of return over alternative performance met-rics such as growth, (3) a strategic emphasis on cost-cutting and short-term profits, and (4) streamlined organizational structures and a focus on core competencies. Economic soci-ologists have extensively documented the rise and spread of shareholder value institutions as firms reorganized their assets, governance structures, and employment strategies to cut costs and boost short-term stock value (Davis 2009; Davis and Thompson 1994; Useem 1993, 1996; Westphal and Zajac 1998, 2001; Zorn et al. 2005).

Less research has examined the broader consequences of this shift in economic organ-ization. As Fligstein and Shin (2007) point out, shareholder value involved not only a succession of corporate control or ploys for manipulating stock prices, but also a concrete set of tactics and organizational practices that significantly reshaped organizations, work, and employment. Central to this project were organizational transformations intended to refashion firms as lean and mean (Budros 2002; Davis 2009). By lean and mean, I refer to strategies aimed at reducing companies’ labor costs and streamlining managerial bureaucracies through various forms of corpo-rate restructuring. In particular, layoffs, comput-erization, mergers, and attacks on unions all emerged as collectively understood means to



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decrease labor costs and for executives to signal their commitment to boosting share-holder value. None of these strategies were new, but starting in the 1980s the shareholder value logic became the common institutional thread linking them together (McCall 2004). Fligstein and Shin (2007) report that at the industry-level, mergers were followed by lay-offs, layoffs coincided with increased invest-ment in computer technologies, and computers then replaced workers in highly unionized industries. Downsizing was also more preva-lent in industries with higher rates of unioni-zation (Baumol, Blinder, and Wolff 2003).

Figure 1 plots the incidence of mergers, layoffs, and real investment in computer tech-nologies during the core years of the share-holder value revolution from 1984 to 2000. (For the sake of presentation, all three series are normalized to 1984 = 1.) The graph shows that the U.S. private sector aggressively pur-sued all three of these strategies, especially during the period of economic growth from the mid- to late-1990s.

Firms’ attempts to streamline in accord-ance with shareholder value ideology differed

from traditional job reductions because they did not reflect adaptation to shifting eco-nomic circumstances so much as adaptation to an institutional environment that prescribed downsize-and-distribute as a normative orien-tation of corporate activity (Lazonick and O’Sullivan 2000). Even profitable, growing firms shed positions as restructuring became construed as a sign of shareholder-friendly management, and financially trained execu-tives oriented toward such strategies assumed increasing power within firms (Zorn et al. 2005). The voluntary, proactive nature of shareholder value restructuring is evident in the fact that overall job displacement rates were higher during the expansionary years of 1993 to 1995 than at any point since 1981 (Kletzer 1998). Approximately half of all respondent firms in the American Manage-ment Association surveys reported downsiz-ing during the economic growth years of 1995 to 1996 (Cappelli 2000), and job dis-placements actually peaked at the height of the economic expansion between 1998 and 2000. The locus of layoffs also shifted increasingly from declining manufacturing

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Figure 1. Private Non-farm Mergers, Layoffs, and Computerization, 1984 to 2000Note: Layoffs refer to announced layoff events involving 50 or more workers (Fligstein and Shin 2007). Computerization denotes real private non-farm investment in hardware and software (U.S. Bureau of Economic Analysis 2010).




industries toward growing service industries by the 1990s (Gardner 1995).2

Top executives could benefit from labor cost-cutting precisely because their own incentives had been realigned to accord with the perceived interests of financial investors. Firms increasingly linked executive pay to market capitalization rather than employment size to discourage empire-building and to establish shareholder returns as the overriding principle of managerial action (Hall and Lieb-man 1998). In conjunction with the fact that Wall Street favored low fixed-costs and streamlined organizations, this gave top exec-utives a strong incentive to cut. As Kennedy (2001:165–66) explained,

[Executives] who want to perform against the standards of the day need to do whatever they can to make sure the quarter comes in right. The heavy and continued emphasis on cost reduction is the most visible manifesta-tion of this trend. Cost cuts, especially cuts in staffing levels, fall directly to the bottom line in a totally predictable and manageable fashion. . . . Since the stock market tends to respond positively to any announcement of an impending cut, why worry? Just keep cutting.

Empirical studies confirm that CEOs of firms that engaged in mergers or announced layoffs experienced sizable and persistent pay increases, mostly in the form of bonus or stock-based compensation (Brookman, Chang, and Rennie 2007). Evidence also shows that CEOs whose firms won union decertification elections received subsequent pay increases (DiNardo, Hallock, and Pischke 1997).

In short, if the overarching aim of share-holder value ideology was that executives should restructure firms to accord with the interests of shareholders, lean and mean strat-egies came to be seen as a key means of achieving or signaling conformance with this goal. At the same time, growing sectors of the economy, such as retail and services, were becoming increasingly dominated by publicly

traded corporations. This meant an ever-greater proportion of workers were employed in firms subject to shareholder value pres-sures (author’s calculation from Compustat [Standard and Poor’s 2008] and U.S. Bureau of Economic Analysis [2010] data).

Assault on Managerialism

The bid to reduce labor costs had a particular distributional character. Cost-cutting strategies were largely directed at traditional targets like workers and unions. The reigning wisdom on Wall Street held that reducing wage rents for workers would help boost shareholder value after a decade of falling profits during the 1970s and early 1980s. Shedding unionized labor was likely an ulterior motive behind much restructuring, particularly in manufactur-ing industries (Gordon 1996).

The far more novel aspect of shareholder value ideology was that it was also very much anti-managerial. In the bureaucracies that pre-dominated in postwar corporate America, managerial pay and status were closely linked to the number of subordinates because rewards filtered up the organizational hierar-chy (Jackall 1988; Rosen 1982). This created incentives for managers to build their own mini-empires by hiring more and more subor-dinates. Separation of investor ownership from managerial control insulated white-col-lar incumbents from market pressures, bring-ing them job security, annual pay raises, and well-defined career ladders in return for loy-alty and competence.

However, scholars and critics alike noted that this bureaucratic logic of managerial empire-building came into tension with the capitalist logic of profit maximization. As Dahrendorf (1972:46) put it, “never has the imputation of a profit motive been further from the real motives of men than it is for modern bureaucratic managers.” Whether this characterization was accurate, share-holder value critics singled out paternalistic corporate policies and the languid bureau-crats they sheltered as another cause of stagnating profits. Middle-managers were



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especially targeted due to the perception that they represented an overpaid and underpro-ductive drain on resources (Osterman 2008). The CEO of General Electric, Jack Welch, who is often cited as a paragon of the share-holder value orientation (Kennedy 2001), bemoaned of middle management, “we were hiring people just to read reports of people who had been hired just to write reports” (quoted in Gordon 1996:51).

Reducing managerial positions was often a primary motive behind corporate restructuring (Jacoby 2000). Streamlining hierarchies fre-quently entailed the wholesale removal of entire management layers. For instance, Batt (1996) describes a unit at AT&T where an explicit goal of restructuring was to decrease the ratio of managers to non-managers from 1:5 to 1:30. Mergers and acquisitions also became a means of excising perceived managerial bloat. Corpo-rate raider Carl Icahn became well known for pursuing this strategy with zeal during the 1980s. In a New York Times Magazine article he decried the “incompetent, inbred managements of many of our major corporations” and described his task as eliminating “layers of bureaucrats reporting to bureaucrats” (Icahn 1989). Investment banks also aggressively mar-keted synergistic merger-combinations as a strategy to reduce costs associated with redun-dant headquarters staff (Ho 2009).

The effects of shareholder value restruc-turing on managers are evident in the increas-ing rates of job loss they suffered relative to both their own historical security and other workers. Involuntary displacement rates for executive, administrative, and managerial occupations during the 1981 to 1982 reces-sion were 2.5 percent but increased to 4.7 percent by 1991 to 1992. Rates for blue-collar operators and fabricators actually declined from 8.2 to 5.3 percent across these two downturns (Gardner 1995). Managers and professionals together accounted for 35 per-cent of new unemployment during 1990 (Caves and Krepps 1993). Nor was manage-rial downsizing merely an episodic event of the early 1990s. Managers accounted for a disproportionate 19 percent of all involuntary

job displacements in the private sector from 1999 to 2001 (U.S. Bureau of Labor Statistics 2002). This percentage was even higher among the large firms included in the Ameri-can Management Association’s downsizing and layoff surveys (Jacoby 2000). As Oster-man (2006:194) put it, “regardless of whether the impetus was tougher governance or organizational innovation, at a first approxi-mation the results were the same for many middle managers: they lost their jobs.”

In short, a great deal of research in sociol-ogy and labor economics suggests that the restructuring of U.S. companies in accord-ance with shareholder value ideologies augured the end of postwar managerialism. By this account, the discipline of financial markets not only targeted management posi-tions but also upended the whole white-collar career logic and executive incentive struc-tures that had allowed managers to become so numerous and prosperous in the first place (Davis 2009; Hirsch 1993).

Managerial Persistence

In contrast to the research discussed earlier, other data show that the classic managerialist tendency to create more and more high-pay-ing managerial positions continued unchecked throughout the shareholder value era. Even as layoffs heightened turnover, the number and proportion of managerial employees, their pay levels, and their share of total corporate income in the U.S. economy all grew steadily from the mid-1980s through the early 2000s.

Figure 2 charts the proportions of total business income devoted to production and supervisory/nonproduction employees’ wages. Supervisory employees is a broad definition of managers that encompasses all types of employees for whom supervision is a primary task. Supervisory salaries as a proportion of total business income increased from 16 to 23 percent between 1980 and 2004, while nonsupervisory workers’ share of corporate income decreased from 36 to 27 percent. Also striking is that total employee pay as a pro-portion of corporate income (the sum of the




two lines) remained virtually unchanged across this period, hovering near 51 percent and only dropping to 49 percent after 2001. This highlights one of the most striking con-tradictions of the shareholder value regime: it resulted in neither reduced managerial labor costs nor a significant shift of corporate income from employees to owners. Instead, the rise of shareholder value coincided with a massive redistribution in the composition of employee pay from workers to managers (see also Gordon 1996).

Figures 3 and 4 offer further evidence of persistent managerial compensation growth using the narrower occupational definition of managers used by the Bureau of Labor Statistics (Executive, Administrative, and Managerial Occupations). Figures 3 and 4 also separate aggregate managerial compensation into its two

constituent components: average marginal pay for managerial incumbents (real hourly earn-ings) and prevalence of managerial positions (number and proportion of managerial employ-ees). Figure 3 shows significant growth in man-agerial positions, with private-sector managerial intensity increasing from 7 percent to over 11 percent between 1984 and 2002. This was driven by a 115 percent increase in the absolute number of managerial positions, from 5.3 mil-lion in 1984 to 11.3 million in 2002. Even as managers were increasingly targeted in corpo-rate downsizings, rehiring and creation of new managerial positions far outpaced job losses in the aggregate.

Figure 4 plots real average hourly earnings for managerial incumbents. It shows manage-rial earnings appreciated 34 percent over the study period. This means that returns to

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Figure 2. Wages Paid to Supervisory and Nonsupervisory Workers as Proportion of Total Business Income, 1980 to 2004Note: I calculated supervisors’ share of total business income by subtracting total wage and salary earnings for production and nonsupervisory workers (U.S. Bureau of Labor Statistics 2010a) from total wage and salary payments to all private non-farm workers (U.S. Bureau of Economic Analysis 2010), and then dividing by total non-farm business income (U.S. Bureau of Economic Analysis 2010).



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Figure 3. Managerial Employment GrowthData source: Current Population Survey (U.S. Bureau of Labor Statistics 2010b).Note: Managers are defined here according to the Census Bureau occupational category “Executives, Administrators, and Managers.” Public administrators and funeral directors are excluded.

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Figure 4. Average Hourly Earnings for Private Non-farm ManagersData source: Current Population Survey (U.S. Bureau of Labor Statistics 2010b).Note: Managers are defined here according to the Census Bureau occupational category “Executives, Administrators, and Managers.” Public administrators and funeral directors are excluded.




managerial positions increased in spite of negative wage pressures from layoffs. When interpreting the upward earnings trend it is important to note that the series plotted here is unaffected by high-earning outliers (see below). Nor does the series include stock-based compensation. This means that mana-gerial earnings growth was not simply a function of increased equity pay.

As important as any of the individual trends in Figures 3 and 4 is the fact that managerial positions and pay both moved upward in unison. One argument about mana-gerial rewards during this period is that aver-age pay increased largely because culling of the lower managerial ranks concentrated positions and rewards among a relatively small number of personnel at the top of the hierarchy. Figure 3 shows this to be false. The increasing portion of corporate income cap-tured by managers is not only a story of steep increases in top executive compensation, but also of broad-based growth in the overall number of managers and their rewards.

Data depicted in Figures 2, 3, and 4 show similar upward trends across several different measures and definitions of managers. Total payments to supervisory employees increased relative to both nonsupervisory employees and total corporate income. The number, proportion, and hourly pay of the narrower executives, administrators, and managers category also increased. Together, these data call into question arguments that investor capitalism augured the end of managerialism (Davis 2009). They point instead toward a more complex and counterin-tuitive relationship between the supposedly anti-managerial shareholder value regime and the actuality of managers in the U.S. economy.

EXPLANATIONSThe data and previous research discussed earlier present two seemingly contradictory sets of facts. First, U.S. firms shed managerial positions en masse during the 1980s and 1990s as they restructured in accordance with shareholder value orthodoxy. Second, the ranks and rewards of managers continued to

grow unabated throughout this period. This raises the question of what effect, if any, puta-tively anti-managerial shareholder value strategies had on managerialism? How do we reconcile the observed trend toward manage-rial downsizing with the aggregate increases in the ranks and rewards accruing to manage-rial incumbents? There are three basic over-arching sets of answers. I discuss each of these below.

Countervailing Pressures

As discussed earlier, previous research suggests that corporations’ embrace of shareholder value strategies put real downward pressure on mana-gerial positions and earnings during the late 1980s and 1990s. One way to reconcile this with persistent aggregate growth of managerial employment and pay is to suppose that negative effects of restructuring simply were not strong enough to counter other forces militating toward heightened demand and rewards for managers.

The most likely countervailing factor is the progressive shift in the sectoral composition of employment and compensation from manufac-turing toward services and finance (Tomasko-vic-Devey and Lin 2011; cf. Littler and Innes 2004). For instance, financial industries tend to employ managers at a significantly higher rate, and pay higher salaries, than does the economy as a whole (Scott, O’Shaughnessy, and Cappelli 1996). Disproportionate growth of industries with high managerial intercepts could lead to aggregate increases in managerial positions and pay despite negative within-industry effects of shareholder value strategies. In other words, the presence of greater numbers of firms in indus-tries with greater managerial intensity and pay levels may have outweighed individual firms’ efforts to reduce managerial costs.3 By this account, persistent aggregate managerial growth occurs in spite of the anti-managerial share-holder value revolution. The countervailing pressures theory predicts that shareholder value strategies such as layoffs, mergers, and comput-erization did exert negative (but ultimately fee-ble) effects on managerial employment and earnings within U.S. industries.4



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Strong Managers and Decoupling

A second explanation of the contradictory trends suggests that shareholder value restruc-turing had no effect on managerial employ-ment and compensation because its anti-managerial thrust was largely symbolic. Institutionalized conceptions of control, such as shareholder value, create powerful shared assumptions about the rationality of particular practices (Fligstein 2001). Institutional theo-rists have argued that it is precisely this taken-for-grantedness that allows the operative meanings or actuality of practices to become decoupled from their avowed functions, thereby assuming the role of myth and cere-mony (Meyer and Rowan 1977). For instance, Westphal and Zajac (1998, 2001) show how executives symbolically managed shareholder value pressures by announcing but then fail-ing to implement long-term executive com-pensation packages and stock repurchase programs. Such duplicity offered executives a convenient strategic device to affirm their commitment to shareholder value without compromising their own perquisites. Remarkably, capital markets continued to reward such announcements with stock price increases even as it became clear they were often never implemented (Zajac and Westphal 2004). This view of rampant decoupling dovetails with a broader managerial power perspective in corporate governance, which highlights how political-institutional arrange-ments and the informational inefficiency of capital markets limit investors’ power to enforce strategic imperatives upon executives (Roe 1994).

Such dynamics may help account for the apparent ineffectualness of the managerial downsizing project. Executives trumpeted restructurings, replaced workers with comput-ers, and shed redundant units through mergers, largely as cover to assuage Wall Street while quietly hiring more and more highly paid man-agers like they had always done. Some firms announced layoffs that were either not imple-mented (Hallock 2003) or were coupled with simultaneous new hiring (Capelli 2000).

MacDuffie (1996) points out that Ford Motor Company’s 1985 announcement of restructur-ing to reduce white-collar positions by 20 per-cent resulted in actual reductions of less than 1.5 percent by 1989. Similarly, even as execu-tives announced plans to restrain managerial pay costs, existing rent-generating compensa-tion practices may have remained intact. Empirically, decoupling arguments imply that implementation of shareholder value strate-gies would have a neutral (i.e., null) effect on the growth trajectories of managerial positions and pay in U.S. industries. For instance, announced downsizings would never be imple-mented, or positions eliminated during restruc-turings would be replaced with new ones, effectively neutralizing any negative effects in the aggregate.5

Fat and Mean

A final, somewhat counterintuitive, possibil-ity is that aggressive use of shareholder value strategies during the 1980s and 1990s actively contributed to growth of managerial earnings and positions. In this account, efforts to make firms lean and mean not only failed to halt management growth but actually played a significant causal role in increasing manage-rial ranks and rewards. This view has been developed most systematically by David Gordon in his 1996 book Fat and Mean. Building on neo-Marxist labor process theo-ries, Gordon locates the sources of manageri-alism in the particularly antagonistic system of labor relations that prevails in the United States. By favoring sticks over carrots, this low-road employment logic breeds manage-rial control strategies that demand extensive monitoring, thereby boosting the ranks of managers. By this logic, Gordon argues that aggressive efforts to reduce labor costs during the 1980s contributed to managerial growth by increasing supervisory requirements over increasingly squeezed and de-skilled work-ers. In other words, strategies nominally ori-ented toward making firms lean and streamlined had the effect of making them fatter at the top.




While Gordon’s thesis focuses specifically on the role of supervisory demands, other con-vergent arguments suggest implementation of shareholder value strategies created new mana-gerial tasks in the networked formations that emerged in place of bureaucratic hierarchies (Meyer 2001). For instance, new needs likely emerged for managers to administer external relations in areas like supply chains and labor outsourcing, or to manage shifting assemblages of flexible project teams. This implies that even as restructuring undercut bureaucratic manage-rialism, the consequent externalization of previ-ously internalized functions had the unintended consequence of creating organizations with ever more elaborate managerial roles (Meyer 2001). In this variant, the imputed mediating mecha-nisms center on organizational structure rather than labor control, but both arguments stress that strategies intended to streamline organiza-tions and reduce managerial labor costs ulti-mately rendered firms more managerial.

Shareholder value strategies also may have positively affected managerial earnings by enhancing the institutional conditions under which managers secure rents. The structural-ist tradition in stratification research argues that earnings determination depends on the relative power workers, managers, and share-holders have in negotiating each group’s share of firm rents (Morgan and Tang 2007). Reorganizations that attack unions will reduce workers’ power to contest future managerial earnings increases (Wallace, Leicht, and Raf-falovich 1999). Even though managers were also often targets of restructuring, they might have captured a greater share of firm rents to the extent their position was strengthened relative to workers. That is, the enhanced ability to siphon rewards from workers might have compensated for any downward pres-sures that these transformations exerted on managerial pay. Similarly, Kalleberg (2003) argues that employment restructuring gener-ates new dynamics of segmentation between contingent outsiders, who are treated as costs, and well-rewarded managerial insiders who manage the flexible production and labor uti-lization processes. While little previous

research substantiates such an argument, the dynamic is consistent with the aggregate trend depicted in Figure 1, which shows that almost all labor cost reductions during the shareholder value period were extracted from production workers but recaptured by super-visory employees. This reasoning implies that implementation of shareholder value strate-gies would be associated with subsequent increases in managerial earnings.

RESEARCH DESIGNI model effects of layoffs, mergers, computer-ization, and deunionization on the growth of managerial earnings and employment within 59 industries from 1984 to 2001. Layoffs, mergers, computerization, and efforts to undermine unions were all prototypical strat-egies firms employed in accordance with shareholder value logics (Fligstein and Shin 2007). It is worth clarifying that these trans-formations vary in the extent to which they were conceived or understood as anti-mana-gerial. Layoffs, mergers, and computerization posed clear threats to middle managers. Although deunionization did not target man-agers, it represents a mechanism through which labor cost-cutting efforts could con-tribute to managerial resurgence. I also exam-ine two inferential measures of shareholder value pressures: the degree to which an indus-try is becoming dominated by publicly traded corporations, and the extent to which owner-ship is held by institutional investors.

The unit of analysis is the industry-year. The 59 two-digit SIC industries comprise over 99 percent of private non-farm employ-ment in the United States.6 There are a num-ber of reasons to use two-digit SIC industries as the unit of analysis. First, industry-level analysis represents a significant methodologi-cal advance over previous studies, which adduce relationships between labor cost-cut-ting strategies and persistent managerial growth from aggregate trends (e.g., Gordon 1996). It is impossible to tell on the basis of aggregate data whether such associations reflect an actual causal link or some other



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confounding factor. Longitudinal analysis within industries allows us to isolate effects of shareholder value strategies from broader compositional shifts in the economy. Second, major industries are a theoretically desirable unit because they most closely approximate the organizational fields that define firms’ competitive and institutional contexts. Firms in a common industry have similar techno-logical demands and face similar resource and regulatory environments. Technologies, strategies, and conceptions of control also tend to diffuse quickly within industries because firms attend closely to their competi-tors, generating strong pressures toward iso-morphism (DiMaggio and Powell 1983).7 Finally, industry groups have long repre-sented a major axis of earnings determination above and beyond variations in workers’ characteristics (Morgan and Tang 2007), and pay-setting benchmarks for managerial posi-tions are often based explicitly on industry averages (Porac, Wade, and Pollock 1999).

Although firm-level data would allow for a finer-grained understanding of underlying mechanisms, matched firm and earnings data is only available for top-five executives, and only at large, publicly traded firms. I reduce the risk of ecological fallacy—that is, making unwarranted inferences about lower-level processes from aggregated data—by includ-ing variables to control for differences in the composition of workers and firms across industries and over time (see below).

For the purposes of this analysis, managers are defined based on the Census Bureau’s 1980 Standard Occupational Classification group Executive, Administrative, and Mana-gerial occupations, excluding legislators and funeral directors. This occupational definition is based on job tasks and organizational posi-tion rather than workplace authority relations. The occupational definition represents a use-ful middle ground between the overly con-strictive operationalization of managers as top executive teams, and the overly inclusive supervisory/nonsupervisory classification, which includes low-level supervisors and forepersons who are not engaged primarily in

management. The executive, administrative, and managerial category does not include professionals, financial operations personnel, or administrative support occupations. This makes the present measures considerably nar-rower than Bendix’s (1956) index of bureau-cratization, in which he included all salaried employees. Managerial occupations specific to the public sector (e.g., public administra-tors) are also effectively excluded because the analysis only covers private-sector industries.8 A complete list of the detailed managerial occupations appears in the online supplement.

Variables and Data

Dependent variables. The dependent variable for the managerial earnings analysis is the average real hourly earnings for executives, administrators, and managers in each industry-year. The earnings variable includes all wage and salary income including cash bonuses and performance pay. It does not include equity compensation.9 I constructed the variable by multiplying each managerial respondent’s annual reported earnings by the CPI-U deflator and then dividing by total hours worked. The skewed nature of the managerial earnings distri-bution might recommend the median over the mean, but top-coding in the CPS survey makes the mean resilient to outliers.10

The dependent variable measure for the managerial employment analysis is the natu-ral log of the total number of executives, administrators, and managers in each indus-try-year. I used logarithmic transformation to mitigate groupwise heteroscedasticity. Although a scaled measure (managers as pro-portion of total employees) builds more closely on previous research, I model abso-lute growth because a proportion measure makes it difficult to distinguish whether observed effects operate through the numera-tor or the denominator. Equivalent analyses using managers as a proportion of total indus-try employment are reported in the online supplement. Results are very similar.




I calculated both dependent variables from the IPUMS-CPS March supplement data (King et al. 2010) using sampling probability weights. Only non-self-employed managers are included. Because small cell sizes created year-to-year noisiness in the estimates for some industries, I smoothed both variables using a locally weighted moving average filter.

Independent variables. I use the same independent variables in the earnings and employment analyses. Annual counts of merg-ers in each industry were tabulated from the Almanac of Mergers and Acquisitions (Flig-stein and Shin 2007). Mergers were coded according to the industry of the target firm. Computerization is measured as the log of total annual industry investment in computers and information technology. Computer investment data come from the U.S. Bureau of Economic Analysis national accounts database (2010). I measure industry unionization as the propor-tion of all workers in an industry who are covered by a union contract. Union coverage data come from Hirsch and Macpherson (2003).

I utilize two alternative measures of lay-offs in separate model specifications. Announced layoff events are measured as a count of events affecting 50 or more employ-ees in an industry during a given year. I tabu-lated these from a full-text content analysis of the Wall Street Journal from 1984 to 2000 (see Fligstein and Shin 2007). The advantage of announced layoff events is that annual data are available over the entire study period. However, one might question the use of announced layoffs in light of the institutional decoupling argument: actual layoffs could have a negative effect on managers, but announced layoffs might exhibit no effect due to non-implementation. For this reason I also created a measure of implemented layoffs using available data from the 1994 to 2002 biennial CPS displaced worker surveys (Center for Economic and Policy Research 2011). From 1994 onward, respondents were asked whether they lost a job at some point

during the previous three years due to restruc-turing, plant closing, abolished shift, insuffi-cient work, or some other similar reason. I tabulated displacement estimates by industry for each overlapping three-year time window spanning 1991 to 2001. I then smoothed these into an annualized estimated count and divided this figure by the number of full-time equivalent employees to derive an annual displacement rate per 1,000 employees. Note that this measure is not directly comparable with the announced layoff measure because it is based on the number of workers laid off in each industry rather than the number of layoff events.

Finally, I use two inferential measures of exposure to shareholder value pressures. First is the proportion of all full-time equivalent (FTE) industry employees who work at pub-licly traded firms. I created this measure by calculating the total sum of FTE employees at publicly traded firms in each industry from the Compustat (Standard and Poor’s 2008) database. I then divided this figure by the BEA’s estimate of total FTE employees in each industry. The second is the proportion of total industry market capitalization held by institutional investors. Institutional investors were among the most aggressive proponents of shareholder value strategies (Useem 1996). This measure captures varying shareholder pressures within the population of publicly traded firms. I calculated this measure from firm-level data in the Thomson Reuters data-base of “13-f ” forms, which all large (>$100 million assets) investment funds must file with the SEC.

Control variables. The models include several time-varying controls for industry-level changes. Size and growth measures include the log of full-time equivalent industry employment, the log of industry-specific real GDP, and the annual rate of growth in industry GDP. Together, these measures capture indus-try growth and decline along dimensions of domestic employment and output. Of course, total managerial employment levels will grow as the overall industry grows. These measures



Goldstein 281

also control for potential effects of industry stagnation due to factors such as international competition.

I include an industry’s total profit to asset ratio because increasing profitability from efficiency gains may mediate the relationship between cost-cutting strategies and manage-rial pay growth. Both lagged and contempora-neous measures are included. As explained below, profitability is treated as endogenous.

I include a control for changes in the firm size distribution within industries because larger firms are associated with higher earn-ings and managerial intensity (Kalleberg and Van Buren 1996). While downsizing led to smaller average firm size in manufacturing during this period, retail and service sectors experienced upsizing through consolidation (Baumol et al. 2003). This could have swollen managerial ranks and earnings simply by vir-tue of the more complex task environments associated with expanding organizational scale.

I control for the proportion of female man-agers in each industry in case the feminiza-tion of management stunts earnings growth or boosts managerial employment levels through title inflation (Jacobs 1992). Finally, I control for changes in the skill profile of managerial incumbents using average years of post-pri-mary education. This accounts for the possi-bility that managerial employment or earnings growth were driven by increased demand for highly skilled workers in dynamic industries rather than increasing returns to managerial positions. Including mean education should help net out observed association between computerization and managerial earnings associated with skill-biased technological change arguments. Table 1 shows descriptive statistics for all variables.

Models

For managerial earnings growth and employ-ment growth, I estimate equivalent dynamic panel models (also known as growth models or lagged dependent variable models). I adopt a GMM approach (Arellano and Bond 1991), which simultaneously accommodates several modeling considerations. First, the Arellano-

Bond estimator allows for consistent estimation in the context of panel dynamics. Growth pro-cesses are typically subject to state dependence insofar as past realizations of the outcome vari-able exert a causal effect on future outcomes, over and above contemporaneous changes in levels of the covariates. For instance, Gordon (1996) invokes bureaucratic feedback mecha-nisms to suggest that managerial growth within large firms is self-propelling: past increases in managerial ranks will propel future increases. Including a lagged measure of the dependent variable on the right-hand side of the equation captures this dynamic. However, lagged depen-dent variable models present estimation diffi-culties due to the twin facts that (1) the lagged endogenous covariate is correlated with unit effects, and (2) standard techniques to purge unit effects through differencing or time-demeaning (the fixed effects transformation) induce correlation between the transformed endogenous variable and the transformed dis-turbance. The resulting bias of OLS can be substantial (Kiviet 1995). The Arellano-Bond estimator overcomes this bias by differencing the equation to remove the unit-specific effects. It then uses lagged differences of the endoge-nous and exogenous covariates as instruments. GMM achieves greater efficiency than two-stage least squared estimators by utilizing addi-tional past lags as instruments (for an explication, see, e.g., Greene 2003).

Second, the GMM framework accommo-dates additional endogenous covariates. This is important due to the potential endogeneity of variables such as profitability, total employ-ment, and firm size. A difference-in-Sargan test indicates industry profitability is likely endogenous, but not average firm size or total industry employment. Note that using lags to instrument an already-lagged covariate costs an additional panel of data.

Third, the Arellano-Bond GMM estimator accommodates fixed effects. Including industry fixed effects permits estimation of longitudinal processes within industries independent of unobserved, time-invariant characteristics asso-ciated with managerial employment and earn-ings. Like all estimators, GMM rests on certain assumptions. I describe these and associated diagnostic tests in the online supplement.



282

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Goldstein 283

One final modeling complication is that the control variable for average firm size is only available from 1988 onward, and data on job displacement and layoffs are only availa-ble from 1991 onward. To make maximal use of the data, I first specify one set of models without the firm size or displacement meas-ures over the full sample period from 1986 to 2001. I then report a second specification with the firm size variable over a constricted period from 1990 to 2001. In a third specifi-cation covering 1992 to 2001, I substitute the job displacement measure for the announced layoffs measure. As shown below, all three sets of models yield very similar results.

RESULTSManagerial Earnings

Table 2 reports results of the industry-level managerial earnings analysis. Note that inclu-sion of the lagged dependent variable on the right side of the equation means that coeffi-cient estimates for the covariates represent effects net of earnings during the previous period. Column one reports the baseline con-trol model. Average earnings grow as indus-tries become more profitable, as their total employment increases, and as managerial incumbents become more highly educated on average. Feminization of management in an industry also has a strong negative effect on managerial earnings, but only when theoreti-cal variables are included in Models 2, 3, and 4. Increasing industry GDP and GDP growth rate are both negatively associated with sub-sequent managerial earnings growth, although this is likely an artifact of high collinearity with the total employment measure.

Model 2 adds the theoretical variables. Results offer strong and consistent support for the fat and mean theory, which predicted a positive relationship between shareholder value strategies and subsequent managerial earnings growth (negative relationship for union coverage). Coefficients for all the theo-retical variables are in the predicted direction, and four of the six are statistically significant. Average managerial earnings increase as

firms consolidate through mergers, as they invest greater amounts of money in computer technologies, and as they become less union-ized. Managers also reap higher hourly earn-ings as their industries become more dominated by publicly traded corporations. Increasing institutional investor predomi-nance and announced layoffs exhibit no sig-nificant independent effect on earnings growth, although unreported specifications indicate announced layoffs do exhibit a posi-tive bivariate effect (net of the controls).

Model 3 adds the compositional control for average firm size. Note that Models 2 and 3 are not nested because inclusion of the firm size variable constricts the sample to the period after 1989. Changes in average firm size in an industry have no effect on managerial earnings net of the other varia-bles. This is consistent with findings of weakening effects of firm scale on earnings determination during this period (Hollister 2004). Nor does inclusion of firm size and consequent restriction of the sample period to the 1990s substantively affect results for the theoretical variables. Coefficients for mergers, computerization, and corporate predominance remain positive in Model 3, and increasing unionization remains nega-tively associated with subsequent manage-rial earnings growth.

Model 4 substitutes the alternative layoff measure ( job displacement rate) for announced layoff events, thereby further restricting the sample period to 1992 to 2001. These results show that heightened rates of job displacement in an industry are associated with significant subsequent managerial earnings growth, in con-trast to the null effect for announced layoffs. Inclusion of job displacement nullifies the com-puterization effect, but the pattern of results is otherwise quite similar.11

Managerial Employment

While results in Table 2 show that organiza-tional transformations associated with share-holder value heightened the rewards attached to managerial positions, they say nothing about changes in the prevalence of these




Table 2. Dynamic GMM Estimates of Industry Average Managerial Earnings Growth

Average Hourly Managerial Earnings

(1) (2) (3) (4)

1986 to 2001 1986 to 2001 1990 to 2001 1992 to 2001

Constant !18.88""" 22.35""" 22.47"" 16.4 (4.208) (5.514) (7.35) (8.683)Controls

Lagged Number of Managers .706""" .561""" .537""" .478""" (.0210) (.0246) (.0306) (.0392)Profit to Asset Ratio .151""" .137""" .143""" .143""" (.0191) (.0191) (.0235) (.0288)Lagged Profit to Asset Ratio !.0875""" !.0345" !.0281 .0394 (.0184) (.0185) (.0247) (.0310)Managerial Education .805""" .661""" .851""" .898""" (.1030) (.1280) (.1530) (.1930)Proportion Female Managers .132 !2.530""" !2.521"" !2.157" (.5980) (.6310) (.7670) (.9270)Total Industry Employment (FTE) 3.593""" 4.058""" 3.984""" 3.034" (.7790) (.7860) (1.2020) (1.4720)Industry Output (GDP) !.498 !4.579""" !4.716""" !3.511"" (.6400) (.6990) (.9510) (1.1830)Industry Growth Rate (GDP) !4.155""" !5.258""" !5.201""" !2.576" (.7680) (.7800) (.9590) (1.2950)Weighted Avg. Firm Size (employees) !.000373 !.000704

(.0009) (.0011)Theoretical Variables

Lagged Mergers .00290"" .00284"" .00461""" (.0009) (.0010) (.0011)Lagged Log Computer Investment .748""" .748""" .262 (.1250) (.1480) (.2500)Lagged % Emp. in Corp. Firms 5.116""" 7.385""" 1.14""" (.6310) (.8290) (1.0630)Lagged Union Coverage Rate !.0836""" !.0772""" !.0587" (.0171) (.0210) (.0277)% Holdings Institutional Investors .195 .217 .491 (.4210) (.5000) (.5990)Lagged Layoff Announcements .0131 .000193 (.0203) (.0244) Lagged Job Displacement Rate 26.05"""

(3.9040)Observations 857 857 668 502

Note: Standard errors are in parentheses."p < .05; ""p < .01; """p < .001 (two-tailed tests).



Goldstein 285

positions. Earnings growth in response to cost-cutting strategies may elide decreases in the number of managers employed, particularly if average earnings are increasing due to hol-lowing of the lower managerial ranks or if remaining managers experience heightened productivity as they are asked to take on greater responsibilities.

Table 3 presents results of the managerial employment analysis. Results are strikingly similar. Increases in number of mergers, level of computer investment, degree of corporate predominance, and presence of institutional investors are all associated with significant subsequent growth in the number of manage-rial employees in an industry. The prevalence of managerial positions also increases follow-ing declines in union coverage rates. As with earnings, changes in the incidence of layoff announcements have no effect on the growth of managerial positions.

Model 7 adds the average firm size con-trol. Not surprisingly, the number of manage-rial employees increases as the average size of firms in an industry increases. The only significant difference between Models 6 and 7 is that the coefficient for mergers ceases to be statistically significant. Otherwise the the-oretical results are very similar.

Model 8 substitutes the job displacement rate measure for announced layoffs. Unlike announced layoffs, which exhibited no effect, higher rates of overall job displacement in an industry are positively associated with subse-quent growth in managerial employment dur-ing the period for which data is available (1992 to 2001). This is consistent with the broader pattern of results. One caveat, how-ever, is that Model 8 does not cover the period from 1989 to 1991, when aggregate manage-rial employment growth stalled. It is unclear whether such a positive effect would attain during those years. Altogether, results of Mod-els 6, 7, and 8 offer consistent support for a positive relationship between implementation of lean and mean cost-cutting strategies and increasing managerial positions within U.S. industries during the shareholder value era.

Sectoral Comparisons

The overall results reported earlier assume managerial growth processes played out simi-larly within different types of industries. Manufacturing, retail, service, and FIRE sec-tors all saw secular increases in managerial earnings and employment, but within-indus-try effects of shareholder strategies on these growth trajectories could vary across sectors. To examine sectoral variations, I re-estimated Models 4 and 8 with sector-specific interac-tion terms. Each theoretical variable is interacted with an indicator variable for retail, service, and financial/real estate industries (manufacturing/extractive is the omitted cat-egory). Intercepts remain industry-specific.

Table 4 shows results of this analysis. Coefficients for the interaction terms repre-sent the estimated difference between slopes for industries in each respective sector and the omitted baseline manufacturing/extractive sector. The associated t-tests indicate whether the difference is statistically significant. These results do not contravene the earlier results, but they do suggest several of the overall effects are driven by transformations within particular sectors. This is particularly so for managerial earnings growth, which is reported in the left-hand column. Coefficient differences indicate that positive effects of increasing corporate predominance are con-fined to manufacturing and, to a lesser extent, nonfinancial service industries. Layoffs also drove managerial earnings growth to a greater extent in manufacturing and nonfinancial ser-vices than in retail or FIRE industries, although in this case the disparities are not statistically significant.

The relationship between shareholder value strategies and managerial employment growth shows less variation across sectors, meaning the results are more consistently positive. The one significant exception is computerization, which has a strongly posi-tive effect on employment growth in manu-facturing and retail, but only a very weak effect among service and financial industries.




Table 3. Dynamic GMM Estimates of Managerial Employment Growth

(log) Number of Managerial Employees in Industry

(5) (6) (7) (8)

1986 to 2001 1986 to 2001 1990 to 2001 1992 to 2001

Constant .552" 3.619""" 3.304""" 3.770""" (.2400) (.3770) (.4920) (.5960)Controls

Lagged Number of Managers .671""" .471""" .425""" .409""" (.0194) (.0249) (.0293) (.0392)Profit to Asset Ratio .00439""" .00316" .00428"" .00785""" (.0013) (.0014) (.0016) (.0020)Lagged Profit to Asset Ratio .00072 .00127 .000944 !.000438 (.0014) (.0014) (.0016) (.0020)Managerial Education !.00949 !.012 !.0182" !.0353"" (.0063) (.0077) (.0091) (.0115)Proportion Female Managers .225""" .197""" .185""" .0887 (.0359) (.0367) (.0436) (.0525)Total Industry Employment (FTE) !.161"" !.0402 .0826 .220" (.0490) (.0502) (.0710) (.0897)Industry Output (GDP) .381""" .223""" .221""" .0738 (.0446) (.0488) (.0619) (.0750)Industry Growth Rate (GDP) .196""" .100 .0423 !.191" (.0509) (.0538) (.0627) (.0826)Lag Weighted Avg. Firm Size (empl.) .000132" .000254"""

(.0001) (.0001)Theoretical Variables

Lagged Mergers .000118" .0000965 .000123 (.00006) (.00006) (.00007)Lagged Log Computer Investment .0400""" .0311""" .0901""" (.0082) (.0092) (.0152)Lagged % Emp. in Corp. Firms .0922" .122" .150" (.0414) (.0528) (.0678)Lagged Union Coverage Rate !.00970""" !.00920""" !.00571"" (.0011) (.0014) (.0019)% Holdings Institutional Investors .0817"" .0991""" .0615 (.0257) (.0300) (.0355)Lagged Layoff Announcements .000852 .000736 (.0012) (.0015) Lagged Job Displacement Rate .561"

(.2520)Observations 857 857 668 502

Note: Standard errors are in parentheses."p < .05; ""p < .01; """p < .001 (two-tailed tests).



Goldstein 287

Table 4. Dynamic GMM Estimates with Sector Interactions

Managerial Earnings Managerial Employment

Job Displacement Rate 25.57""" .907"" (4.948) (.306)Displacement X Retail !21.16 .840 (27.37) (1.626)Displacement X Services 6.095 !.691 (12.28) (.722)Displacement X FIRE !40.47 !2.418 (30.89) (1.748)Mergers .00640 !.00004 (.00369) (.00022)Mergers X Retail !.0125 !.00011 (.00646) (.00038)Mergers X Services !.00472 .00013 (.00383) (.00023)Mergers X FIRE !.0147" .00004 (.00588) (.00035)Computer Investment .492 .173""" (.446) (.0266)Computer Investment X Retail !.589 !.0634 (2.369) (.136)Computer Investment X Services !.783 !.135""" (.617) (.0358)Computer Investment X FIRE .0628 !.116"" (.708) (.0420)Corp. Ownership 18.12""" .239" (1.714) (.109)Corp. Ownership X Retail !19.67 !.542 (36.55) (2.119)Corp. Ownership X Services !12.34""" !.142 (2.370) (.142)Corp. Ownership X FIRE !24.51""" !.0535 (3.373) (.199)Institutional Investor Holdings 2.471 .0632 (1.441) (.0824)Institutional Investors X Retail !4.594"" .0348 (1.805) (.104)Institutional Investors X Services !1.682 .0428 (1.685) (.0971)Institutional Investors X FIRE 1.414 !.187 (3.600) (.207)Union Coverage !.0239 !.00499" (.0358) (.00226)Union Coverage X Retail .144 .0136 (.264) (.0159)Union Coverage X Services !.0347 !.00343 (.0693) (.00406)Union Coverage X FIRE !.0583 !.00155 (.303) (.0176)Constant !19.42 3.79 (13.07) (.833)Observations 502 502

Note: Main effects and cross-products of control variables are included in model but omitted from table. Standard errors are in parentheses."p < .05; ""p < .01; """p < .001 (two-tailed tests).




Overall, sectoral breakdowns indicate that positive effects of shareholder value indica-tors on managerial earnings growth were driven mostly by processes within manufac-turing and nonfinancial service industries. For employment growth, positive effects hold across all sectors, although they tend to be more consistently pronounced in manufactur-ing and retail. Note that with the possible exception of the cross-product between retail and institutional investors in the earnings equation, in none of the four sectors do share-holder value transformations appear to exhibit negative effects on either employment or earnings growth. Thus there is little evidence that the overall results conceal strongly diver-gent processes across sectors.

Summary and Robustness Checks

Despite some variation across model specifi-cations and across sectors, the overall pattern of results suggests the shareholder value rev-olution and consequent restructuring of U.S. industries significantly contributed to increas-ing managerial pay and employment. Moreover, the pattern of effects is markedly similar across both dependent variables. The fact that these effects attain within industries suggests aggregate managerial growth during this period was not simply a result of shifting industrial composition, but was driven at least in part by shareholder value strategies.

I conducted several further tests to assess the sensitivity of the results. First, I examined the scope of the observed effects by rerunning equivalent models for the occupational group Management-Related Occupations, which includes administrative support positions such as accountants and analysts. None of the shareholder value indicators exhibit signifi-cant effects on earnings or employment growth for this group. The one exception is layoffs (displacement rate), which actually has a negative impact on management-related administrative employment—in contrast to the positive effect for managers. This implies that the results reported earlier reflect pro-cesses specific to managerial positions rather than merely tapping a broader process of

administrative proliferation in modern organ-izations (Bendix 1956).

Second, I examined whether results might be affected by the increasing number of weekly hours managers reported working during this period. For instance, hourly earnings growth could be driven in part by higher marginal com-pensation for working more hours. Or, increas-ing demand for managerial labor in some industries could result in increasing hours of work rather than increasing number of posi-tions. Including a control for average hours worked has no effect on the results.12

DISCUSSION AND CONCLUSIONSScholars have noted the curious puzzle that managers in the United States continued to grow more numerous and prosperous during the 1980s and early 1990s despite seemingly powerful institutional currents militating against them (Gordon 1996; Jacoby 2000; Littler and Innes 2004). This article adds three sets of empirical findings. First, mana-gerial employment and pay continued to increase through the late 1990s and early 2000s. Second, the industry-level analytic results provide consistent evidence that it was through precisely those organizational and institutional transformations commonly asso-ciated with managerial downsizing that man-agerial positions and earnings increased. Third, effects of shareholder value strategies on managerial earnings growth tended to be more pronounced in manufacturing and non-financial service sectors, while effects on managerial employment growth occurred throughout the economy.

The findings carry several implications. Most basic, they support the underlying insight of Gordon’s (1996) fat and mean the-sis. In particular, they present much more rigorous evidence for a causal relationship between labor cost-cutting strategies and managers’ enhanced standing: efforts to make firms lean and mean not only failed to halt the century-long trend toward greater managerial presence in the economy, but they actually helped propel its continued growth.



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An important feature of the analysis is that it applies to managerial occupations in gen-eral—not just top executives at Fortune 500 firms. That top executives would capture sig-nificant gains from labor cost-cutting during this period is not surprising in light of what we know about CEO compensation practices (Brookman et al. 2007). What is striking about the present results is that strategies nominally oriented toward reducing labor costs and flattening organizational structures by shedding managerial layers were associ-ated at the industry-level with broad-based increases in the number of managers and the valuation of managerial labor.13 Moreover, the fact that the earnings measure utilized here does not include equity-based compen-sation means that the observed effects must be operating through labor market and organ-izational pay-setting mechanisms rather than simply through stock price appreciation.

More broadly, the results speak to ongoing debates in economic sociology about how the shareholder value revolution did and did not transform corporate organizations and stake-holder power in the U.S. economy. The prevail-ing view is that the incentives for top executives to heighten their power by enlarging manage-ment came to an end during the 1980s as execu-tive pay was restructured to favor policies that would redistribute resources from employees to shareholders (Davis 2009; Useem 1996). The results here point to a more complex story. Rather than reducing total labor costs as a share of business income (i.e., redirecting corporate income from workers and managers to share-holders), the primary effect of prototypical shareholder value strategies was to transfer labor income from production workers to man-agers. These findings offer a corrective to Davis (2009) insofar as the rise of financial capitalism has actually reinforced key dynamics of the managerialist order, enlarging the managerial class and heightening its members’ ability to capture organizational resources.

One possibility is to interpret these results as an instance of strategic decoupling: execu-tives trumpeted downsizing, replaced work-ers with computers, and shed redundant units through mergers, all as a strategic device to

please Wall Street while quietly hiring more and more managers like they had always done (Westphal and Zajac 1998). In this view, shareholder value represents little more than a set of justificatory discourses and practices that management uses to frame its existing prerogatives. Decoupling may be a sufficient explanation for why shareholder value strate-gies failed to decrease managerial compensa-tion, but it does not explain the consistently positive effects of these practices on manage-rial growth. A more plausible interpretation is that organizational transformations in pursuit of labor cost-cutting induced demand for new types of managerial tasks in restructured firms, for instance, to coordinate outsourced supply chains and contingent labor utiliza-tion, and to organize short-term, project-based work teams (Meyer 2001).

Similarly, managers may have secured new rents as a result of new forms of employ-ment segmentation that attended organiza-tional restructuring (Kalleberg 2003). The fact that managerial earnings returns from restructuring were strongest in goods-produc-ing industries likely reflects managers’ ability to capture corporate income that had formerly been allocated to the better paid and more unionized production workers in that sector.

Such arguments suggest that while increas-ing managerial positions and pay during this period reflected continuity with long-term trends (Gordon 1996), the shareholder value revolution significantly altered the institu-tional mechanisms through which this growth occurred. More broadly, it implies that future research in economic sociology should look beyond strategic decoupling and symbolic management of shareholders in order to probe the (often paradoxical and unintended) struc-tural consequences of dominant ideologies and strategies (cf. Dobbin and Jung 2010).

Several lingering ambiguities open up questions for future research. First, although the reported industry-level associations are provocative and quite robust, the precise mechanisms underlying them remain some-what unclear. I have suggested that new organizational task requirements resulting from restructuring created demand for more




managers, but more research is needed to substantiate this interpretation. Another pos-sibility is that corporations did not merely adopt Wall Street’s prescriptions to downsize and cut costs, but also increasingly mimicked the financial sector’s own internal modes of employment organization, which couple high levels of managerial intensity and pay with high levels of job insecurity and turnover (for an interesting variant of this argument, see Ho 2009). Furthermore, it is possible that the reduction in job stability has itself contributed to increasing managerial pay as highly sought managerial employees are no longer willing to defer earnings in the short-term for the (unlikely) prospect of stability and career advancement. Finally, managerial earnings returns to shareholder value strategies might reflect the operation of pay fairness norms, whereby outsized gains for CEOs trickle-down to benefit lower-level managers (Wade, O’Reilly, and Pollock 2006).14

Another question is how exactly to reconcile the reality of a labor market that produces ever more highly paid managerial jobs with wide-spread findings of subjective insecurity and downward mobility among displaced manage-rial incumbents during this same period. Quali-tative studies suggest a selection process whereby younger, market-oriented MBAs sup-plant older bureaucratic managers who may face declining job prospects (Mendenhall et al. 2008). However, the mean age of managerial incumbents actually increased slightly across the study period, and supplementary analysis of the BLS’s displaced workers surveys shows that managers holding advanced degrees were no less likely to suffer involuntary job loss (results available on request). This is an interesting issue that deserves further research.

Finally, the present analysis focuses on the private sector during the 1990s, but evidence suggests other domains, including universi-ties, are increasingly moving toward top-heavy organizations (see, e.g., UC Committee on Planning and Budget 2010). Not-for-profit organizations may offer an interesting site to extend future research on the linkages between organizational austerity projects and persistent managerial growth in the United States.

FundingThis research was supported in part by an NSF graduate fellowship.

AcknowledgmentsEarlier versions of this article were presented at the 2010 meeting of the Society for the Advancement of Socio-Economics (Philadelphia) and at the 2011 American Sociological Association meeting (Las Vegas). The author would like to thank Heather Havemen, Neil Flig-stein, and the five anonymous ASR reviewers for helpful comments. The author also thanks Taekjin Shin and Neil Fligstein for making available their database of mergers and announced layoffs.

Notes 1. Managerial intensity refers to managers as a propor-

tion of total employment. 2. Of course, there is no necessary functional link

between the goal of increasing shareholder returns and adoption of lean and mean strategies as a means to achieve this. In fact, the balance of evidence sug-gests layoffs and mergers were adopted in a copycat fashion and failed to boost efficiency or long-term stock values (Agrawal and Jaffe 2000; O’Neill, Pouder, and Buchholtz 1998).

3. Osterman (2008) questions this explanation because upward trends in managerial intensity occurred within both manufacturing and financial sectors. However, industries vary considerably in their use of managers even within sectors.

4. Note that I do not directly measure the extent to which sectoral shifts boosted managerial ranks and earnings. Rather, shifting industry composition pro-vides a mechanism for reconciling the ostensibly negative effects of shareholder value strategies with aggregate increases.

5. Of course, there are other reasons why implementa-tion of shareholder value strategies could have no effect on managerial intensity and pay, but decou-pling provides a theoretical rationale to expect a null effect in a context where prior theory suggests a nega-tive effect.

6. A description of the industry sample and its construc-tion can be found in the online supplement (http://asr.sagepub.com/supplemental).

7. Although three-digit industries would permit more granular measurement of the independent variables, it is impossible to generate valid managerial earnings and employment estimates below the two-digit level due to excessively small cell sizes.

8. One other issue concerns the level of occupational aggregation. There are two reasons to conduct a single set of analyses on the two-digit occupational group rather than separate analyses for each detailed three-digit occupation (e.g., financial managers and personnel managers). First, disaggregating to detailed



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occupations yields industry-occupation cell sizes that are far too small for analysis. Second, although the composition of executives and managers may vary significantly within and across industries, the func-tional distinctions between detailed occupations do not necessarily capture this variation, as evidenced by the disproportionate growth of the residual category, managers not elsewhere classified. I instead account for compositional changes in the profile of managers in each industry by including a time-varying measure of their average educational attainment.

9. Unfortunately, there is no historical industry-level data on managers’ equity-based compensation aside from top-five executives. Equity pay became increas-ingly central in executive compensation packages at large public firms over the study period, but it remained far less prevalent overall. Oyer and Schae-fer (2005) estimate that in 1999, only 1.4 percent of all establishments were associated with firms that granted broad-based equity pay to a significant por-tion of nonexecutives. Exclusion of equity-based compensation from the earnings measure in the pres-ent context makes the analyses more conservative by ruling out the possibility that observed earnings gains were driven simply by a shift toward equity pay in conjunction with the stock market bubble.

10. CPS earnings data is top-coded at a time-varying cutoff for confidentiality purposes. This affects obser-vations for the top 1 to 2 percent of all earners each year. To avoid downwardly-biased earnings esti-mates, I adjusted top-coded cases using annual cell means constructed from internal CPS data (Larrimore et al. 2008). Even with this adjustment, top-coding effectively compresses the right tail of the earnings distribution. This is advantageous in the present con-text because it prevents disproportionate earnings growth at the very top from skewing our picture of the broader set of managers on which this article focuses. Even after upward adjustments to compensate for top-coding, the CPS data evidence only a moderate increase in managerial earnings dispersion over time. The overall variance in log hourly earnings increased from .38 in 1984 to .41 in 2000. The relative contribu-tions of within- and between-industry variance remained approximately constant.

11. The differing results for announced layoffs and implemented layoffs offer some evidence to support decoupling arguments. However, given that announced layoffs do exhibit a positive bivariate effect on earnings net of the controls (not reported), I suspect the differing results may also derive from dif-ferences in empirical dependence among the theoretical covariates or undercounting of layoff announcements at small firms (Hallock 2003).

12. Another possible objection is that the managerial employment results could be driven by title inflation. There are several reasons to be skeptical that title inflation or some other systematic process of dilution is skewing the quantitative results. First, there are

very similar upward trends across multiple definitions of managers. Second, the occupational classification in the CPS data is based on reported job tasks rather than just job title, which means the measures used in the analysis are somewhat resilient to title inflation. Third, title inflation implies that managerial intensity and managerial earnings would go in opposite directions because inflation involves diluting the managerial pool with lower-level workers who are managers in name only. Instead, managerial intensity and managerial earnings moved upward in unison.

13. One caveat is that the broad-based earnings growth examined here is still quite modest compared to gains by top executives. Total compensation for top-five executives at public firms rose over 130 percent from 1995 to 2001 (Bebchuk and Grinstein 2005). The average earnings measure used here is unaffected by these executive outliers, but absolute increases in the typical manager’s earnings should still be understood in the context of significant declines relative to top management.

14. This point was suggested by one of the anonymous reviewers.

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Adam Goldstein is a PhD Candidate in the Depart-ment of Sociology at the University of California,

Berkeley. His research focuses on the economic sociology of financial capitalism in the contemporary United States. Current projects examine how growing inequality and labor market insecurity have shaped households’ incorporation into financial markets; the organizational underpinnings of the 2008 financial crisis; and the role of local community structures in mediating patterns of housing market speculation. He is also engaged in a more general series of collabora-tive studies that attempt to model linkages between integrative processes in social fields and the delocal-ization of social action.



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