Management and Inequality - nbloom.people.stanford.edu · Scott Ohlmacher (Census) Cristina...
Transcript of Management and Inequality - nbloom.people.stanford.edu · Scott Ohlmacher (Census) Cristina...
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Management and Inequality
Nick Bloom (Stanford)Scott Ohlmacher (Census)
Cristina Tello-Trillo (Census)
ASSA January 4th 2019
Disclaimer: Any opinions and conclusions expressedherein are those of the author and do not necessarilyrepresent the views of the US Census Bureau. All resultshave been reviewed to ensure that no confidentialinformation is disclosed.
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Long history of work on management in economics e.g. Walker (1887)
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Francis Walker (1840-1897) was the founding President of the AEAWalker ran the 1870 and 1880 Census, claiming management was the major source of performance differences across US firms in Walker (1887)
But he had no management data – this was pretty much pure speculation
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So the US Census ran the Management and Organizational Practices Survey (MOPS) in 2010 and 2015 (and in preparation for 2020)
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Initial work on the MOPS management data looked at plant performance, e.g.
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Source: Bloom, Brynjolfsson, Foster, Jarmin, Patnaik, Saporta-Eksten & Van Reenen (forthcoming AER)
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What about Management & Inequality?
Many claim that aggressive management practices only enrich CEOs and managers - presumably raising inequality
Maybe the rise of more structured management (private equity, multinationals etc) is driving the rise in inequality?
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Data – management and worker earnings
Management and Inequality
Management and Earnings Volatility
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Management & Organizational Practices Survey 2010
It was delivered to ~50,000 manufacturing plants in 2011 (asking about 2010) and in 2016 (asking about 2015)
This was quick and easy to fill out - and mandatory - so 74% of plants responded.
In 2010: covering 5.6m employees (>50% of US manufacturing employment)
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MOPS contacts were mostly senior managers
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MOPS asks about performance monitoring e.g.
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Examples of monitoring– manufacturing
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Example of no performance metrics: Textile Plant
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Examples of monitoring: hotels (from a prior ASSA)
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MOPS also asks about incentives e.g.
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Examples of incentives - performance reviews
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Each of the 16 questions is assigned a value from 0 (least structured) to 1 (most structured)
16 Management
8 Monitoring
8 Incentives
4 Bonus
2 Promotions
2 Reassignment/Dismissal
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Overall management score displays a wide spread
Note: The management score is the average of the scores for each of the 16 questions
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Longitudinal Employer-Household Dynamics (LEHD)
Linked employer-employee quarterly wage data for all workers in state unemployment insurance records
Use workers with quarterly earnings at least full-time federal minimum wage ($3,800) around 2010 (2009Q4-2011Q1)
Use firm-state (SEIN) manufacturing with 20+ employees
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Data
Management and Inequality
Management and Earnings Volatility
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Correlation of management and within firm inequality is…. Decreasing in Structured Management (binscatter)
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Correlation of management and within firm inequality is strongly negative Decreasing in Structured Management (binscatter)
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Maybe this is all due to industry, regional, size, age or some other variation?
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Dependent Variable Log(90th Percentile) ‐ Log(10th Percentile)(1) (2) (3)
Management ‐0.1447*** ‐0.1066*** ‐0.057***(0.0185) (0.0192) (0.019)
Log(Emp) ‐0.0312*** ‐0.013***(0.0026) (0.003)
Log(Capital/Emp) ‐0.0207*** ‐0.016***(0.0032) (0.003)
Log(VA/Emp) 0.0084** 0.015***(0.0038) (0.004)
Share of Employees w/ a Bachelor's Degree
0.2027*** 0.201***(0.0203) (0.020)
Firm Age 0.001(0.000)
Log(Firm Employment) ‐0.022***(0.002)
Observations (Firm‐State) 17,000 17,000 17,000Number of Firms (Clusters) 11,000 11,000 11,000Fixed Effects Industry, State Industry, State Industry, State23
No – the Management and within firm inequality correlation is very robust
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This negative management & within-firm inequality correlation driven by the greater rise in lower half earnings at firms with more structured management
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The 90-10 Earnings Differential is Strongly Decreasing in the 8 Monitoring questions
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The 90-10 Earnings Differential is Weakly Increasing in 8 Incentives questions
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Dependent Variable Log(90th Percentile) ‐ Log(10th Percentile)(1) (2)
Monitoring ‐0.146*** ‐0.143***(0.018) (0.018)
Incentives 0.049***(0.014)
Bonuses 0.035***(0.009)
Promotions ‐0.018*(0.010)
Reassignment/Dismissal 0.020***(0.007)
Observations (Firm‐State) 17,000 17,000Number of Firms (Clusters) 11,000 11,000Fixed Effects Industry, State Industry, State
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Within incentives bonuses and reassignment (or dismissal) the most linked to inequality
Note: Includes controls for log(SEIN employment), log(parent firm employment), log(capital/employment), log(VA/emp), employee share with a degree and firm age.
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Robustness: look at longer-run pay for workers in the firm 2009-2011, finding similar resultsDependent Variable Log(90th) ‐ Log(10th) Percentile
(1) (2) (3)Management ‐0.071***
(0.022)Monitoring ‐0.179*** ‐0.176***
(0.020) (0.020)Incentives 0.058***
(0.016)Bonuses 0.038***
(0.009)Promotions ‐0.008
(0.011)Reassignment/Dismissal 0.016**
(0.007)Observations (Firm‐State) 14,500 14,500 14,500Num Firms (Clusters) 10,000 10,000 10,000Fixed Effects Industry, State Industry, State Industry, State
28Note: Includes controls for log(SEIN employment), log(parent firm employment), log(capital/employment), log(VA/emp), employee share with a degree and firm age. Uses earnings from 2009Q1 to 2011Q4.
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More generally find a weak negative link between performance and inequality
Dependent Variable Log(90th Percentile) ‐ Log(10th Percentile)(1) (2) (3)
Log(Firm Employment) ‐0.027***(0.002)
Log(Shipments/Emp) ‐0.011***(0.004)
Log(Profit/Shipments) ‐0.024***(0.007)
Largest Plant TFP
Observations (Firm‐State) 17,000 17,000 17,000Number of Firms (Clusters) 11,000 11,000 11,000Fixed Effects Industry, State Industry, State Industry, State
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Data
Management and Inequality
Management and Earnings Volatility
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Well known inequality exists within and between firms (and is increasing in both) – motivating this paper
Source: Song, Bloom, Guvenen, Price and Von Wachter (2019, QJE)
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Less well known: US earnings volatility is falling
LEHD data,(Abowd and McKinney, 2019)
SSA data,(Bloom, Guvenen, Pistaferri, Sabelhaus, Salgado & Song, 2018)
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So what about management and earnings volatility – maybe good management reduces inequality but increase volatility?
Measure variance of the four quarters of 2010 earnings growth for each employee, then average at the SEIN (firm-state) level
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Earnings volatility small positive correlation with management (negative for monitoring and positive for incentives)
Dependent Variable Variance in Log(Quarterly Worker Earnings)(1) (2) (3)
Management 0.005**(0.002)
Monitoring ‐0.012*** ‐0.011***(0.002) (0.002)
Incentives 0.011***(0.001)
Bonuses 0.015***(0.001)
Promotions ‐0.004***(0.002)
Reassignment/Dismissal ‐0.001(0.001)
Observations (Firm‐State) 17,000 17,000 17,000Num Firms (Clusters) 11,000 11,000 11,000Fixed Effects Industry, State Industry, State Industry, State
34Note: Includes controls for log(SEIN employment), log(parent firm employment), log(capital/employment), log(VA/emp), employee share with a degree and firm age.
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One mechanism is simply 4th quarter bonuses
Dependent Variable Firm‐State Mean of (Log Q4 Earnings ‐ Average Log Earnings for Q1‐Q3)(1) (2) (3)
Management 0.020**(0.008)
Monitoring & Targeting ‐0.021*** ‐0.019**(0.008) (0.007)
Incentives 0.028***(0.006)
Bonuses 0.031***(0.004)
Promotions ‐0.003(0.004)
Reassignment/Dismissal ‐0.003(0.003)
Obs (Firm‐State) 17,000 17,000 17,000Num Firms (Clusters) 11,000 11,000 11,000Fixed Effects Industry, State Industry, State Industry, State
Note: Includes controls for log(SEIN employment), log(parent firm employment), log(capital/employment), log(VA/emp), employee share with a degree and firm age.
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Dependent Variable Average Variance in Log(Quarterly Worker Earnings)(1) (2) (3)
Management 0.007***(0.002)
Monitoring & Targeting ‐0.010*** ‐0.009***(0.002) (0.002)
Incentives 0.012***(0.001)
Bonuses 0.013***(0.001)
Promotions ‐0.003**(0.001)
Reassignment/Dismissal ‐0.000(0.001)
Obs (Firm‐State) 14,500 14,500 14,500Num Firms (Clusters) 10,000 10,000 10,000Fixed Effects Industry, State Industry, State Industry, State
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But not just individual 4th quarter bonuses as results are similar in the 3 year panel 2009-2011
Note: Includes controls for log(SEIN employment), log(parent firm employment), log(capital/employment), log(VA/emp), employee share with a degree and firm age.
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Conclusions
1) Structured management practices (and better firm performance) are correlated with lower within-firm inequality
2) Offsetting effects: Monitoring is correlated with less within firm inequality
(and lower volatility) Incentives - particularly bonuses & firing - correlated
more within firm inequality (and higher volatility)
Next: (A) panel data (2015 MOPS), and (B) some causality….
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Thank you
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Performance and Inequality
Dependent Variable Log(90th Percentile) ‐ Log(10th Percentile)Log(Firm Employment) ‐0.014***
(0.003)Log(Emp) ‐0.022***
(0.002)Average Annual Employment Growth, 2005‐2010 (Winsorized)
‐0.034***(0.011)
Log(Capital/Emp) ‐0.013***(0.003)
Share of Employees w/ a Bachelor's Degree
0.201***(0.020)
Firm Age 0.000(0.000)
Observations (Firm‐State) 17,000Number of Firms (Clusters) 11,000Fixed Effects Industry, State
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Monitoring Question Examples
Return
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Targeting Question Examples
Return
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Bonus Question Examples
Return
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Promotion Questions
Return
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Reassignment & Dismissal Question Example
Return
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Establishment-Level Results from Bloom et al. (2013)
Dependent Variable Log(VA/Emp)Log(Profit/Shipments)
(1) (2) (3)Management 1.272*** 0.498*** 0.058***
(0.05) (0.037) (0.01)Log(Emp) ‐0.035*** 0.001
(0.006) (0.002)Log(Capital/Emp) 0.179*** 0.01***
(0.007) (0.002)Share of Employees w/ a Bachelor's Degree
0.418*** 0.004(0.041) (0.011)
Observations (Firm‐State) 32,000 32,000 32,000Number of Firms (Clusters) 18,000 18,000 18,000Fixed Effects None Industry Industry
Return
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Structured Management Strongly Correlated with Performance (Bloom et al. 2019)
Dependent Variable Log(VA/Emp)Log(TFP of
Largest Plant)Log(Shipments
/Emp)Log(Profit/Shipments)
(1) (2) (3) (4) (5)Management 1.281*** 0.620*** 0.075*** 0.691*** 0.064***
(0.052) (0.044) (0.029) (0.038) (0.022)Log(Emp) 0.012 ‐0.005 0.004**
(0.008) (0.007) (0.002)Log(Capital/Emp) 0.002** 0.002*** ‐0.000
(0.001) (0.001) (0.000)Share of Employees w/ a Bachelor's Degree
0.673*** 0.637*** ‐0.024(0.052) (0.045) (0.044)
Observations (Firm‐State) 17,000 17,000 17,000 17,000 17,000Number of Firms (Clusters) 11,000 11,000 11,000 11,000 11,000Fixed Effects None Industry, State None Industry, State Industry, State
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Descriptive Statistics
MeanStandard Deviation
25th Percentile
75th Percentile
Log(90th Percentile) ‐ Log(10th Percentile) 0.975 0.305 0.761 1.152
Log(90th Percentile) ‐ Log(50th Percentile) 0.617 0.244 0.446 0.748
Log(50th Percentile) ‐ Log(10th Percentile) 0.359 0.141 0.257 0.439
Average Variance inLog(Quarterly Worker Earnings) 0.033 0.032
Management Score 0.658 0.136 0.581 0.757
Monitoring & Targeting Score 0.698 0.153 0.604 0.813
Incentives Score 0.607 0.185 0.500 0.739
Bonuses Score 0.413 0.285
Promotions Score 0.858 0.257
Reassignment/Dismissal Score 0.632 0.347
Log(Emp) 4.882 1.065
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Again, relationship particularly driven
Dependent Variable Log(90th Percentile) ‐ Log(50th Percentile) Log(50th Percentile) ‐ Log(10th Percentile)(1) (2)
Monitoring & Targeting ‐0.094*** ‐0.053***(0.015) (0.008)
Incentives 0.042*** 0.007(0.012) (0.006)
Bonuses
Promotions
Reassignment/Dismissal
Log(Emp) ‐0.014*** 0.002*(0.002) (0.001)
Log(Capital/Emp) ‐0.019*** 0.005***(0.003) (0.001)
Log(VA/Emp) 0.009*** 0.006***(0.003) (0.002)
Share of Employees w/ a Bachelor's Degree
0.087*** 0.116***(0.016) (0.010)
Firm Age 0.000* 0.000(0.000) (0.000)
Log(Firm Employment) ‐0.020*** ‐0.000(0.002) (0.001)
Observations (Firm‐State) 17,000 17,000Number of Firms (Clusters) 11,000 11,000Fixed Effects Industry, State Industry, State
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Linking LEHD & MOPS
Aggregate MOPS (& ASM) to the firm-state (SEIN) level
Employment-weighted mean of management scores
Sum of shipments, employment, etc.
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