These Unequal States: Corporate Organization and Income Inequality in the United States

Abstract

In an analysis of data on employment in the 48 contiguous United States from 1978 to 2008, we examine the connection between organizational demography and rising income inequality at the state level. Drawing on research on social comparisons and firm boundaries, we argue that large firms are susceptible to their employees making social comparisons about wages and that firms undertake strategies, such as wage compression, to help ameliorate their damaging effects. We argue that wage compression affects the distribution of wages throughout the broader labor market and that, consequently, state levels of income inequality will increase as fewer individuals in a state are employed by large firms. We hypothesize that the negative relationship between large-firm employment and income inequality will weaken when large employers are more racially diverse and their workers are dispersed across a greater number of establishments. Our results show that as the number of workers in a state employed by large firms declines, income inequality in that state increases. When these firms are more racially diverse, however, the negative relationship between large-firm employment and income inequality weakens. These results point to the importance of considering how corporate demography influences the dispersion of wages in a labor market.