Ot - Complementar - The Managers Revenge

440093
93GoldsteinAmerican Sociological Review

2012
ASRXXX10.1177/00031224124400
Revenge of the
Managers: Labor CostCutting and the Paradoxical
Resurgence of Managerialism
in the Shareholder Value Era,
1984 to 2001
American Sociological Review

77(2) 268294
American Sociological
Association 2012
DOI: 10.1177/0003122412440093
http://asr.sagepub.com
Adam Goldsteina
Abstract
Institutional 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
Gordons (1996) fat and mean thesis.
Keywords
financial capitalism, managerialism, restructuring, shareholder value
The determinants and historical progression of

managerialism and managerial intensity in formal organizations have long interested sociologists (Bendix 1956; Guilln 1994; Weber 1978).
During the early twentieth century, managers
assumed control of growing corporations and
built expansive, complex administrative bureaucracies 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
a
University of California, Berkeley
Corresponding Author:
Adam Goldstein, Department of Sociology,
University of California, Berkeley, 410 Barrows
Hall, Berkeley, CA 94720-1980
E-mail: goldstam@berkeley.edu
Downloaded from asr.sagepub.com at UNIV CALIFORNIA BERKELEY LIB on March 30, 2012
Goldstein
269
market; this assured managerial incumbents job

security, generous pay, and privileged access to
internal labor markets. As a result of this institutional 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 shareholder value revolution and the spread of organizational restructuring during the 1980s and
1990s. Scholars and popular commentators heralded the end of managerialist modes of organization as a resurgent Wall Street sought to
heighten profits by dismantling corporate
bureaucracies and trimming the ranks and perquisites that managers had long enjoyed in
Americas large firms (Caves and Krepps 1993;
Hirsch 1993). Financial critiques of bureaucratic bloat and the resulting wave of downsizing, 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 managers 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 managerial intensity (Baron, Hannan, and Burton
1999).1 Scholars have probed the effects of
corporate restructuring and employment reorganization on job stability, career paths, and
workplace morale, but there has been surprisingly little systematic research on the paradoxical 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. Furthermore, hourly earnings for managerial incumbents increased 34 percent at the same time
overall wages stagnated. As a result, the share

of total business income devoted to managerial salaries actually rose from 16 to 23 percent between 1984 and 2001 (authors
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 managerial 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 companies 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 executives 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 managerial 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 shareholder value had no impact on managerial
growth because its anti-managerial symbolism was decoupled from actual organizational practice (DiMaggio and Powell 1983;
Westphal and Zajac 1998, 2001). Finally, a
third thesis suggests lean and mean strategies positively contributed to increasing
managerial positions and pay by transforming organizational structures and employment 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 strategies on the growth trajectories of managerial
employment and earnings in 57 major industries
in the United States from 1984 to 2001. In probing 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). Gordons study was the first to show systematically
that the supposed assault on managers during
the late 1980s and early 1990s actually coincided 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. However, this latter element in Gordons argument
(the causal link between labor cost-cutting strategies 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 predominance of publicly traded firms and institutional investors on managerial employment
and hourly earnings. Results from dynamic
panel specifications show that layoffs, mergers, 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 consultants, and a new generation of financially
trained executives advocated and progressively 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 revolution. 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 corporate activities, (2) financial conceptions of
control that stress stock performance and rate
of return over alternative performance metrics 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 sociologists 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 organization. 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 corporate restructuring. In particular, layoffs, computerization, mergers, and attacks on unions all
emerged as collectively understood means to
3.5
12
10
2.5
1.5
Real Computer Investment (1984 = 1)
271
Incidence of Mergers and Layoff

Announcements (1984 = 1)
Goldstein
0
0.5
1984 1986 1988 1990 1992 1994 1996 1998 2000
Mass Layoff Announcements
Mergers
Computer Investment (right axis)
Figure 1. Private Non-farm Mergers, Layoffs, and Computerization, 1984 to 2000
Note: 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).
decrease labor costs and for executives to

signal their commitment to boosting shareholder 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 layoffs, layoffs coincided with increased investment in computer technologies, and computers
then replaced workers in highly unionized
industries. Downsizing was also more prevalent in industries with higher rates of unionization (Baumol, Blinder, and Wolff 2003).
Figure 1 plots the incidence of mergers,
layoffs, and real investment in computer technologies during the core years of the shareholder 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 pursued all three of these strategies, especially
during the period of economic growth from
the mid- to late-1990s.
Firms attempts to streamline in accordance with shareholder value ideology differed
from traditional job reductions because they

did not reflect adaptation to shifting economic circumstances so much as adaptation
to an institutional environment that prescribed
downsize-and-distribute as a normative orientation of corporate activity (Lazonick and
OSullivan 2000). Even profitable, growing
firms shed positions as restructuring became
construed as a sign of shareholder-friendly
management, and financially trained executives 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 Management Association surveys reported downsizing during the economic growth years of
1995 to 1996 (Cappelli 2000), and job displacements actually peaked at the height of
the economic expansion between 1998 and
2000. The locus of layoffs also shifted
increasingly from declining manufacturing
272
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 Liebman 1998). In conjunction with the fact that
Wall Street favored low fixed-costs and
streamlined organizations, this gave top executives a strong incentive to cut. As Kennedy
(2001:16566) 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 manifestation 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 shareholder value ideology was that executives
should restructure firms to accord with the
interests of shareholders, lean and mean strategies 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 evergreater proportion of workers were employed

in firms subject to shareholder value pressures (authors calculation from Compustat
[Standard and Poors 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 manufacturing 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 predominated in postwar corporate America,
managerial pay and status were closely linked
to the number of subordinates because
rewards filtered up the organizational hierarchy (Jackall 1988; Rosen 1982). This created
incentives for managers to build their own
mini-empires by hiring more and more subordinates. Separation of investor ownership
from managerial control insulated white-collar incumbents from market pressures, bringing them job security, annual pay raises, and
well-defined career ladders in return for loyalty 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, shareholder value critics singled out paternalistic
corporate policies and the languid bureaucrats they sheltered as another cause of
stagnating profits. Middle-managers were
Goldstein
273
especially targeted due to the perception that

they represented an overpaid and underproductive drain on resources (Osterman 2008).
The CEO of General Electric, Jack Welch,
who is often cited as a paragon of the shareholder 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 frequently 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. Corporate 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 marketed synergistic merger-combinations as a
strategy to reduce costs associated with redundant headquarters staff (Ho 2009).
The effects of shareholder value restructuring on managers are evident in the increasing 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 recession 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 percent of new unemployment during 1990
(Caves and Krepps 1993). Nor was managerial 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 American Management Associations downsizing
and layoff surveys (Jacoby 2000). As Osterman (2006:194) put it, regardless of whether
the impetus was tougher governance or
organizational innovation, at a first approximation the results were the same for many
middle managers: they lost their jobs.
In short, a great deal of research in sociology and labor economics suggests that the
restructuring of U.S. companies in accordance with shareholder value ideologies
augured the end of postwar managerialism.
By this account, the discipline of financial
markets not only targeted management positions but also upended the whole white-collar
career logic and executive incentive structures 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-paying 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 proportion of corporate income (the sum of the
274
Percentage of Total Private Business Income
38%
35%
32%
29%
26%
23%
20%
17%
14%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Wages to Nonsupervisory Workers
Wages to Supervisory Workers
Figure 2. Wages Paid to Supervisory and Nonsupervisory Workers as Proportion of Total

Business Income, 1980 to 2004
Note: 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).
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 contradictions 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 earnings) and prevalence of managerial positions
(number and proportion of managerial employees). Figure 3 shows significant growth in managerial 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 million in 1984 to 11.3 million in 2002. Even as
managers were increasingly targeted in corporate 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 managerial earnings appreciated 34 percent over
the study period. This means that returns to
Goldstein
275
Figure 3. Managerial Employment Growth
Data 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.
$27.00
$26.00
Hourly Earnings (Constant $)
$25.00
$24.00
$23.00
$22.00
$21.00
$20.00
$19.00
$18.00
1984
1986
1988
1990
1992
1994
1996
1998
2000
Figure 4. Average Hourly Earnings for Private Non-farm Managers
2002
Data 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.
276
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 stockbased compensation. This means that managerial 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 managerial rewards during this period is that average 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 captured 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 counterintuitive relationship between the supposedly
anti-managerial shareholder value regime and
the actuality of managers in the U.S. economy.
EXPLANATIONS
The 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, putatively anti-managerial shareholder value
strategies had on managerialism? How do we
reconcile the observed trend toward managerial downsizing with the aggregate increases
in the ranks and rewards accruing to managerial incumbents? There are three basic overarching 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 managerial 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 manufacturing toward services and finance (Tomaskovic-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, OShaughnessy, 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 industries 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 shareholder value revolution. The countervailing
pressures theory predicts that shareholder value
strategies such as layoffs, mergers, and computerization did exert negative (but ultimately feeble) effects on managerial employment and
earnings within U.S. industries.4
Goldstein
277
Strong Managers and Decoupling

A second explanation of the contradictory
trends suggests that shareholder value restructuring had no effect on managerial employment 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 theorists have argued that it is precisely this takenfor-grantedness that allows the operative
meanings or actuality of practices to become
decoupled from their avowed functions,
thereby assuming the role of myth and ceremony (Meyer and Rowan 1977). For instance,
Westphal and Zajac (1998, 2001) show how
executives symbolically managed shareholder
value pressures by announcing but then failing to implement long-term executive compensation 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 arrangements 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 computers, and shed redundant units through mergers,
largely as cover to assuage Wall Street while
quietly hiring more and more highly paid managers like they had always done. Some firms
announced layoffs that were either not implemented (Hallock 2003) or were coupled with
simultaneous new hiring (Capelli 2000).
MacDuffie (1996) points out that Ford Motor

Companys 1985 announcement of restructuring to reduce white-collar positions by 20 percent resulted in actual reductions of less than
1.5 percent by 1989. Similarly, even as executives announced plans to restrain managerial
pay costs, existing rent-generating compensation practices may have remained intact.
Empirically, decoupling arguments imply that
implementation of shareholder value strategies 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 implemented, or positions eliminated during restructurings would be replaced with new ones,
effectively neutralizing any negative effects in
the aggregate.5
Fat and Mean

A final, somewhat counterintuitive, possibility 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 managerial 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 theories, Gordon locates the sources of managerialism 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 managerial 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 workers. In other words, strategies nominally oriented toward making firms lean and
streamlined had the effect of making them
fatter at the top.
278
While Gordons thesis focuses specifically

on the role of supervisory demands, other convergent arguments suggest implementation of
shareholder value strategies created new managerial 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 managerialism, the consequent externalization of previously internalized functions had the unintended
consequence of creating organizations with ever
more elaborate managerial roles (Meyer 2001).
In this variant, the imputed mediating mechanisms center on organizational structure rather
than labor control, but both arguments stress
that strategies intended to streamline organizations and reduce managerial labor costs ultimately 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 structuralist tradition in stratification research argues
that earnings determination depends on the
relative power workers, managers, and shareholders have in negotiating each groups
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 Raffalovich 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 pressures that these transformations exerted on
managerial pay. Similarly, Kalleberg (2003)
argues that employment restructuring generates new dynamics of segmentation between
contingent outsiders, who are treated as costs,
and well-rewarded managerial insiders who
manage the flexible production and labor utilization 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 supervisory employees. This reasoning implies that
implementation of shareholder value strategies would be associated with subsequent
increases in managerial earnings.
RESEARCH DESIGN
I model effects of layoffs, mergers, computerization, 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 strategies firms employed in accordance with
shareholder value logics (Fligstein and Shin
2007). It is worth clarifying that these transformations vary in the extent to which they
were conceived or understood as anti-managerial. Layoffs, mergers, and computerization
posed clear threats to middle managers.
Although deunionization did not target managers, it represents a mechanism through
which labor cost-cutting efforts could contribute to managerial resurgence. I also examine two inferential measures of shareholder
value pressures: the degree to which an industry is becoming dominated by publicly traded
corporations, and the extent to which ownership 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 employment in the United States.6 There are a number of reasons to use two-digit SIC industries
as the unit of analysis. First, industry-level
analysis represents a significant methodological advance over previous studies, which
adduce relationships between labor cost-cutting 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
Goldstein
279
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 technological 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 competitors, generating strong pressures toward isomorphism (DiMaggio and Powell 1983).7
Finally, industry groups have long represented a major axis of earnings determination
above and beyond variations in workers
characteristics (Morgan and Tang 2007), and
pay-setting benchmarks for managerial positions 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 fallacythat is, making
unwarranted inferences about lower-level
processes from aggregated databy including 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 Bureaus
1980 Standard Occupational Classification
group Executive, Administrative, and Managerial occupations, excluding legislators and
funeral directors. This occupational definition
is based on job tasks and organizational position rather than workplace authority relations.
The occupational definition represents a useful middle ground between the overly constrictive 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 narrower than Bendixs (1956) index of bureaucratization, in which he included all salaried
employees. Managerial occupations specific
to the public sector (e.g., public administrators) 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 industryyear. 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 respondents
annual reported earnings by the CPI-U deflator
and then dividing by total hours worked. The
skewed nature of the managerial earnings distribution 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 natural log of the total number of executives,
administrators, and managers in each industry-year. I used logarithmic transformation to
mitigate
groupwise
heteroscedasticity.
Although a scaled measure (managers as proportion of total employees) builds more
closely on previous research, I model absolute growth because a proportion measure
makes it difficult to distinguish whether
observed effects operate through the numerator or the denominator. Equivalent analyses
using managers as a proportion of total industry employment are reported in the online
supplement. Results are very similar.
280
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 mergers in each industry were tabulated from the
Almanac of Mergers and Acquisitions (Fligstein 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 proportion 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 layoffs in separate model specifications.
Announced layoff events are measured as a
count of events affecting 50 or more employees in an industry during a given year. I tabulated 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 restructuring, plant closing, abolished shift, insufficient 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 publicly 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 Poors 2008)
database. I then divided this figure by the
BEAs 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 database 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 industrylevel 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 industry 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 industrys total profit to asset
ratio because increasing profitability from
efficiency gains may mediate the relationship
between cost-cutting strategies and managerial pay growth. Both lagged and contemporaneous 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 earnings 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 virtue of the more complex task environments
associated with expanding organizational
scale.
I control for the proportion of female managers in each industry in case the feminization 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-primary education. This accounts for the possibility 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 employment 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 processes are typically subject to state dependence
insofar as past realizations of the outcome variable exert a causal effect on future outcomes,
over and above contemporaneous changes in
levels of the covariates. For instance, Gordon
(1996) invokes bureaucratic feedback mechanisms 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 dependent variable models present estimation difficulties 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 timedemeaning (the fixed effects transformation)
induce correlation between the transformed
endogenous variable and the transformed disturbance. 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 endogenous and exogenous covariates as instruments.
GMM achieves greater efficiency than twostage least squared estimators by utilizing additional past lags as instruments (for an explication,
see, e.g., Greene 2003).
Second, the GMM framework accommodates additional endogenous covariates. This
is important due to the potential endogeneity
of variables such as profitability, total employment, 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 associated with managerial employment and earnings. Like all estimators, GMM rests on certain
assumptions. I describe these and associated
diagnostic tests in the online supplement.
282
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
Mean
23.42
Standard Deviation
6.01
Minimum
10.7
Maximum
47.01
Hourly Manager Earnings
(log) Total Managerial Emp.
.12
Profit / Asset Ratio
.07
Avg. Post-Primary Educ. (yrs)
.45
Proportion Female
.39
(log) FTE Employment
.22
Growth Rate (%GDP)
.01
Output (log GDP)
.08
Avg. Firm Size
.45
Announced Layoff Events
.39
Mergers
.13
Computer Investment (log)
.19
% Emp. in Public Corporations
.65
Union Coverage Rate
.17
% Holdings Institutional Investor .02
Job Displacement Rate
.03
Variable #
.14
.09
.35
.75
.20
.77
.02
.24
.41
.67
.11
.22
.12
.08
11.27
1.21
7.01
13.85
.03
.11
.21
.16
.14
.19
.03
.08
.19
.12
.34
.17
.16
7.34
8.11
17.83
40.38
.12
.05
.00
.06
.37
.28
.15
.19
.38
.08
.07
.03
8.05
.42
3.5
9
.31
.15
.18
.11
.13
.12
.25
.39
.38
.05
.10
.34
.17
.01
.86
.18
.83
.15
.14
.40
.65
.39
.36
.11
.33
6.83
1.04
3.68
9.14
Table 1. Descriptive Statistics of Two-Digit SIC Industry Characteristics
.14
.01
.02
.13
.20
.09
.15
.02
.20
.025
.072
.44
.5
.02
.24
.44
.81
.08
.27
.04
.30
11.11
1.04
8.17
13.93
.28
.01
.02
.66
.52
.08
.09
699
281
135
1,424
.30
.30
.39
.03
.05
.18
1.14
2.45
0
19
10
.44
.10
.17
.02
.09
66.79
146
0
2,426
11
.10
.46
.07
.19
6.64
1.65
.42
1.81
12
.43
.08
.15
.42
.38
.03
1.04
13
.09
.01
17.49
15.41
.85
85
14
.01
.38
.12
0
.76
15
.05
.03
.01
.21
16
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 available from 1991 onward. To make maximal use
of the data, I first specify one set of models
without the firm size or displacement measures 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 specification 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.
RESULTS
Managerial Earnings
Table 2 reports results of the industry-level
managerial earnings analysis. Note that inclusion of the lagged dependent variable on the
right side of the equation means that coefficient estimates for the covariates represent
effects net of earnings during the previous
period. Column one reports the baseline control model. Average earnings grow as industries 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 theoretical variables are included in Models 2, 3, and
4. Increasing industry GDP and GDP growth
rate are both negatively associated with subsequent 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 theoretical 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 unionized. Managers also reap higher hourly earnings as their industries become more
dominated by publicly traded corporations.
Increasing institutional investor predominance and announced layoffs exhibit no significant independent effect on earnings
growth, although unreported specifications
indicate announced layoffs do exhibit a positive 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 variables. 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 negatively associated with subsequent managerial 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 contrast to the null effect for announced layoffs.
Inclusion of job displacement nullifies the computerization effect, but the pattern of results is
otherwise quite similar.11
Managerial Employment
While results in Table 2 show that organizational transformations associated with shareholder value heightened the rewards attached
to managerial positions, they say nothing
about changes in the prevalence of these
284
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
Controls
Lagged Number of Managers
Profit to Asset Ratio
Lagged Profit to Asset Ratio
Managerial Education
Proportion Female Managers
Total Industry Employment (FTE)
Industry Output (GDP)
Industry Growth Rate (GDP)
18.88
(4.208)
22.35
(5.514)
22.47
(7.35)
.706
(.0210)
.151
.561
(.0246)
.137
.537
(.0306)
.143
.478
(.0392)
.143
(.0191)
.0875
(.0184)
.805
(.0191)
.0345
(.0185)
.661
(.1030)
.132
(.5980)
3.593
(.1280)
2.530
(.6310)
4.058
(.0235)
.0281
(.0247)
.851
(.1530)
2.521
(.7670)
3.984
(.0288)
.0394
(.0310)
.898
(.1930)
2.157
(.9270)
3.034
(.7790)
.498
(.6400)
4.155
(.7860)
4.579
(.6990)
5.258
(1.2020)
4.716
(.9510)
5.201
(.7680)
(.7800)
Weighted Avg. Firm Size (employees)

Theoretical Variables
Lagged Mergers
Lagged Log Computer Investment
Lagged % Emp. in Corp. Firms
Lagged Union Coverage Rate
% Holdings Institutional Investors
Lagged Layoff Announcements
(.9590)
.000373
(.0009)
.00290
(.0009)
.748
(.1250)
5.116
.00284
(.0010)
.748
(.1480)
7.385
(.6310)
.0836
(.0171)
.195
(.4210)
.0131
(.0203)
(.8290)
.0772
(.0210)
.217
(.5000)
.000193
(.0244)
857
668
Lagged Job Displacement Rate

Observations
857
Note: Standard errors are in parentheses.

p < .05; p < .01; p < .001 (two-tailed tests).
16.4
(8.683)
(1.4720)
3.511
(1.1830)
2.576
(1.2950)
.000704
(.0011)
.00461
(.0011)
.262
(.2500)
1.14
(1.0630)
.0587
(.0277)
.491
(.5990)
26.05
(3.9040)
502
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 hollowing 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 managerial employees in an industry. The prevalence
of managerial positions also increases following 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 control. Not surprisingly, the number of managerial 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 theoretical 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 subsequent growth in managerial employment during the period for which data is available
(1992 to 2001). This is consistent with the
broader pattern of results. One caveat, however, is that Model 8 does not cover the period
from 1989 to 1991, when aggregate managerial employment growth stalled. It is unclear
whether such a positive effect would attain
during those years. Altogether, results of Models 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 similarly within different types of industries.
Manufacturing, retail, service, and FIRE sectors all saw secular increases in managerial
earnings and employment, but within-industry 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 interaction terms. Each theoretical variable is
interacted with an indicator variable for retail,
service, and financial/real estate industries
(manufacturing/extractive is the omitted category). Intercepts remain industry-specific.
Table 4 shows results of this analysis.
Coefficients for the interaction terms represent 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 confined to manufacturing and, to a lesser extent,
nonfinancial service industries. Layoffs also
drove managerial earnings growth to a greater
extent in manufacturing and nonfinancial services 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 positive effect on employment growth in manufacturing and retail, but only a very weak
effect among service and financial industries.
286
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
Controls
Lagged Number of Managers
Profit to Asset Ratio
Lagged Profit to Asset Ratio
Managerial Education
Proportion Female Managers
Total Industry Employment (FTE)
Industry Output (GDP)
Industry Growth Rate (GDP)
.552
(.2400)
3.619
(.3770)
3.304
(.4920)
3.770
(.5960)
.671
(.0194)
.00439
.471
(.0249)
.00316
.425
(.0293)
.00428
.409
(.0392)
.00785
(.0013)
.00072
(.0014)
.00949
(.0063)
.225
(.0359)
.161
(.0014)
.00127
(.0014)
.012
(.0077)
.197
(.0367)
.0402
(.0502)
.223
(.0488)
.100
(.0538)
(.0016)
.000944
(.0016)
.0182
(.0091)
.185
(.0436)
.0826
(.0710)
.221
(.0619)
.0423
(.0627)
.000132
(.0001)
.000118
(.00006)
.0400
(.0082)
.0922
.0000965
(.00006)
.0311
(.0092)
.122
.000123
(.00007)
.0901
(.0152)
.150
(.0414)
.00970
(.0011)
.0817
(.0528)
.00920
(.0014)
.0991
(.0257)
.000852
(.0012)
(.0300)
.000736
(.0015)
(.0678)
.00571
(.0019)
.0615
(.0355)
857
668
(.0490)
.381
(.0446)
.196
(.0509)
Lag Weighted Avg. Firm Size (empl.)

Theoretical Variables
Lagged Mergers
Lagged Log Computer Investment
Lagged % Emp. in Corp. Firms
Lagged Union Coverage Rate
% Holdings Institutional Investors
Lagged Layoff Announcements
Lagged Job Displacement Rate
Observations
857
Note: Standard errors are in parentheses.

(.0020)
.000438
(.0020)
.0353
(.0115)
.0887
(.0525)
.220
(.0897)
.0738
(.0750)
.191
(.0826)
.000254
(.0001)
.561
(.2520)
502
Goldstein
287
Table 4. Dynamic GMM Estimates with Sector Interactions
Job Displacement Rate

Displacement X Retail
Displacement X Services
Displacement X FIRE
Mergers
Mergers X Retail
Mergers X Services
Mergers X FIRE
Computer Investment
Computer Investment X Retail
Computer Investment X Services
Computer Investment X FIRE
Corp. Ownership
Corp. Ownership X Retail
Corp. Ownership X Services
Corp. Ownership X FIRE
Institutional Investor Holdings
Institutional Investors X Retail
Institutional Investors X Services
Institutional Investors X FIRE
Union Coverage
Union Coverage X Retail
Union Coverage X Services
Union Coverage X FIRE
Constant
Observations
Managerial Earnings
Managerial Employment
25.57
(4.948)
21.16
(27.37)
6.095
(12.28)
40.47
(30.89)
.00640
(.00369)
.0125
(.00646)
.00472
(.00383)
.0147
.907
(.306)
.840
(1.626)
.691
(.722)
2.418
(1.748)
.00004
(.00022)
.00011
(.00038)
.00013
(.00023)
.00004
(.00035)
.173
(.00588)
.492
(.446)
.589
(2.369)
.783
(.617)
.0628
(.708)
18.12
(1.714)
19.67
(36.55)
12.34
(2.370)
24.51
(3.373)
2.471
(1.441)
4.594
(1.805)
1.682
(1.685)
1.414
(3.600)
.0239
(.0358)
.144
(.264)
.0347
(.0693)
.0583
(.303)
19.42
(13.07)
502
(.0266)
.0634
(.136)
.135
(.0358)
.116
(.0420)
.239
(.109)
.542
(2.119)
.142
(.142)
.0535
(.199)
.0632
(.0824)
.0348
(.104)
.0428
(.0971)
.187
(.207)
.00499
(.00226)
.0136
(.0159)
.00343
(.00406)
.00155
(.0176)
3.79
(.833)
502
Note: Main effects and cross-products of control variables are included in model but omitted from table.
Standard errors are in parentheses.
288
Overall, sectoral breakdowns indicate that

positive effects of shareholder value indicators on managerial earnings growth were
driven mostly by processes within manufacturing and nonfinancial service industries.
For employment growth, positive effects hold
across all sectors, although they tend to be
more consistently pronounced in manufacturing 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 shareholder value transformations appear to exhibit
negative effects on either employment or
earnings growth. Thus there is little evidence
that the overall results conceal strongly divergent processes across sectors.
Summary and Robustness Checks

Despite some variation across model specifications and across sectors, the overall pattern
of results suggests the shareholder value revolution and consequent restructuring of U.S.
industries significantly contributed to increasing 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 significant 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 employmentin contrast to
the positive effect for managers. This implies
that the results reported earlier reflect processes specific to managerial positions rather
than merely tapping a broader process of
administrative proliferation in modern organizations (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 compensation for working more hours. Or, increasing demand for managerial labor in some
industries could result in increasing hours of
work rather than increasing number of positions. Including a control for average hours
worked has no effect on the results.12
DISCUSSION AND
CONCLUSIONS
Scholars 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, managerial 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 associated with managerial downsizing that managerial positions and earnings increased.
Third, effects of shareholder value strategies
on managerial earnings growth tended to be
more pronounced in manufacturing and nonfinancial 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 Gordons (1996) fat and mean thesis. 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.
Goldstein
289
An important feature of the analysis is that

it applies to managerial occupations in generalnot just top executives at Fortune 500
firms. That top executives would capture significant 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 associated 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 compensation means that the observed effects must
be operating through labor market and organizational 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 stakeholder power in the U.S. economy. The prevailing view is that the incentives for top executives
to heighten their power by enlarging management came to an end during the 1980s as executive 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 shareholders), the primary effect of prototypical
shareholder value strategies was to transfer
labor income from production workers to managers. 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: executives trumpeted downsizing, replaced workers 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 strategies failed to decrease managerial compensation, but it does not explain the consistently
positive effects of these practices on managerial 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 utilization, 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 employment segmentation that attended organizational restructuring (Kalleberg 2003). The
fact that managerial earnings returns from
restructuring were strongest in goods-producing 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 increasing managerial positions and pay during this
period reflected continuity with long-term
trends (Gordon 1996), the shareholder value
revolution significantly altered the institutional 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) structural 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 somewhat unclear. I have suggested that new
organizational task requirements resulting
from restructuring created demand for more
290
managers, but more research is needed to

substantiate this interpretation. Another possibility is that corporations did not merely
adopt Wall Streets prescriptions to downsize
and cut costs, but also increasingly mimicked
the financial sectors 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 trickledown to benefit lower-level managers (Wade,
OReilly, 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 widespread findings of subjective insecurity and
downward mobility among displaced managerial incumbents during this same period. Qualitative studies suggest a selection process
whereby younger, market-oriented MBAs supplant 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 BLSs 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 universities, are increasingly moving toward topheavy 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.
Funding
This research was supported in part by an NSF graduate
fellowship.
Acknowledgments
Earlier versions of this article were presented at the 2010
meeting of the Society for the Advancement of SocioEconomics (Philadelphia) and at the 2011 American
Sociological Association meeting (Las Vegas). The
author would like to thank Heather Havemen, Neil Fligstein, 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 proportion 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 suggests layoffs and mergers were adopted in a copycat
fashion and failed to boost efficiency or long-term
stock values (Agrawal and Jaffe 2000; ONeill,
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 provides a mechanism for reconciling the ostensibly
negative effects of shareholder value strategies with
aggregate increases.
5. Of course, there are other reasons why implementation of shareholder value strategies could have no
effect on managerial intensity and pay, but decoupling provides a theoretical rationale to expect a null
effect in a context where prior theory suggests a negative effect.
6. A description of the industry sample and its construction 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
Goldstein
291
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 functional 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 increasingly central in executive compensation packages at
large public firms over the study period, but it
remained far less prevalent overall. Oyer and Schaefer (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 portion of nonexecutives. Exclusion of equity-based
compensation from the earnings measure in the present 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 observations for the top 1 to 2 percent of all earners each
year. To avoid downwardly-biased earnings estimates, 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 context 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 contributions 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 differences 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 managers 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 Department 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 collaborative studies that attempt to model linkages between
integrative processes in social fields and the delocalization of social action.

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440093

93GoldsteinAmerican Sociological Review

American Sociological Review

The determinants and historical progression of

from management control allowed managers to

University of California, Berkeley

market; this assured managerial incumbents job

overall wages stagnated. As a result, the share

American Sociological Review 77(2)

for managerial labor and enhanced managers

SHAREHOLDER VALUE AND

United States. A diffuse alliance of institutional

Real Computer Investment (1984 = 1)

Incidence of Mergers and Layoff

Computer Investment (right axis)

Figure 1. Private Non-farm Mergers, Layoffs, and Computerization, 1984 to 2000

decrease labor costs and for executives to

from traditional job reductions because they

American Sociological Review 77(2)

industries toward growing service industries

Empirical studies confirm that CEOs of

traded corporations. This meant an evergreater proportion of workers were employed

especially targeted due to the perception that

job displacements in the private sector from

American Sociological Review 77(2)

Percentage of Total Private Business Income

Wages to Supervisory Workers

Figure 2. Wages Paid to Supervisory and Nonsupervisory Workers as Proportion of Total

two lines) remained virtually unchanged

constituent components: average marginal pay

Figure 3. Managerial Employment Growth

Hourly Earnings (Constant $)

Figure 4. Average Hourly Earnings for Private Non-farm Managers

American Sociological Review 77(2)

managerial positions increased in spite of

grow unabated throughout this period. This

Strong Managers and Decoupling

MacDuffie (1996) points out that Ford Motor

Fat and Mean

American Sociological Review 77(2)

While Gordons thesis focuses specifically

research substantiates such an argument, the

confounding factor. Longitudinal analysis

management. The executive, administrative,

Variables and Data

American Sociological Review 77(2)

I calculated both dependent variables from

also control for potential effects of industry

Bond estimator allows for consistent estimation

Table 1. Descriptive Statistics of Two-Digit SIC Industry Characteristics

One final modeling complication is that

firms consolidate through mergers, as they

American Sociological Review 77(2)

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

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

Weighted Avg. Firm Size (employees)

Lagged Job Displacement Rate

Note: Standard errors are in parentheses.

positions. Earnings growth in response to

American Sociological Review 77(2)

Table 3. Dynamic GMM Estimates of Managerial Employment Growth

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

Lag Weighted Avg. Firm Size (empl.)

Note: Standard errors are in parentheses.