Bringing Productivity Back In: Rising Inequality and Economic Rents in the U.S. Manufacturing Sector, 1971 to 2001

Abstract

Using data on earnings and productivity for U.S. manufacturing industries from 1971 to 2001, we investigate economic rents and rising income inequalities. The results suggest that rents are most significant for managers, professionals, middle-aged workers, and older workers. Conversely, negative rents are evident for women, Hispanics, single men, and blue-collar workers. The underpayment of Hispanics appears to have increased while African Americans have gone from being underpaid to being overpaid. Workers with a college degree have become overpaid (i.e., “credentialism”) while “gift-exchange” efficiency wages have declined. The marginal productivity of labor input has increased but is increasingly underpaid.

ACKNOWLEDGMENTS

This research was supported by the National Science Foundation (Award SES 0961565).

NOTES

Notes

¹ The term “productivity” does not appear in the index of either of the massive editions of The Handbook of Economic Sociology (Smelser and Swedberg 2005). To our knowledge, Kim and Sakamoto (2008a) and Sakamoto and Kim (2010) are the only recent quantitative sociological studies linking inequality and productivity.

² Wright's (1997:31–34) theoretical discussion emphasizes the salient role of productivity in Marxist theory. Ironically, Wright's (1997) purportedly Marxian analyses omit the empirical investigation of productivity and instead focus on conventional stratification topics such as socioeconomic mobility, gender differentials, and political attitudes.

³ Wright contrasts the Weberian approach as being focused on “exchange relations” whereas “the Marxist account is said to emphasize the importance of conflict over the performance and appropriation of labor effort …” (Wright 2002:846). This distinction ignores, however, the Marxian “transformation problem” which assumes that the “exchanges of commodities take place at prices proportional to their labor values” (Shaikh 1977:106). Marx likely focused on the labor theory of value not because he thought that “exchange relations” were irrelevant, but because he believed that the labor theory of value would ultimately explain them in terms of the underlying “prices of production” (Giddens 1971:52; Shaikh 1977:106).

⁴ Tomaskovic-Devey and Lin (2011:539) define “financialization” as referring to the “financial services firms' increasing importance—in economic, social and political terms—to U.S. society” (emphasis added), suggesting some inherent relationship with Davis and Moore's approach.

⁵ Our statistical analysis of rents is essentially identical to what Sakamoto and Kim (2010) refer to as “exploitation” in their attempt to link their empirical investigation to the broader theoretical concerns raised by Sorensen (2000). In retrospect, however, the term “exploitation” involves additional broader theoretical issues (Goldthorpe 2000; Wright 2000; Sakamoto and Liu 2006) that are beyond the scope of this statistical method. In the following, we therefore use the less presumptive term, “rent.”

⁶ Even though Equation 2 was derived from the log transformation of a multiplicative model, Equation 2 cannot be estimated with ordinary least squares because the components of labor input (e.g., ln[1 + (δ₁ − 1)SM]) still remain nonlinear. We therefore estimated Equation 2 using a nonlinear least squares method.

⁷ Job restructuring on the part of employers has been a notable theme in the literature on rising inequality (Kalleberg 2003; Autor et al. 2006; Acemoglu and Autor 2011).

⁸ Note that per-capita figures cannot be exactly derived from the first four rows of Table 1 because the ratio of means is generally not equal to the mean of the ratio.

⁹ The estimated correlations for the second time period are intermediate between the first and third periods in size. They are also positive and statistically significant.

¹⁰ The direct estimation of industrial rents is not feasible with this model because of the interaction between the industrial fixed effects and year. Experimenting with slightly modified specifications suggests, however, substantial industrial effects on productivity but declining industrial effects on earnings. This “decoupling” between productivity and earnings across industries is entirely consistent with our finding of declining “gift-exchange” efficiency wages.

¹¹ Using firm-level data for Taiwanese manufacturing companies, Liu, Sakamoto, and Su (2010) find evidence of “capitalist rent.”

¹² Capital-intensive firms (which are typical in the manufacturing sector) may also choose to accumulate retained earnings or pay off liabilities rather than increase dividends. Such actions would then be evident as increased stockholders' equity.

¹³ Sakamoto and Kim's (2010:37) distributional analysis (although again limited to the manufacturing sector) finds the largest negative rents among workers in the lowest quintile of the earnings distribution.