Variation in Managements’ Relative Wage across U.S. Industries: its Impact on Managements’ Employment Share And Labor Productivity

David B. Yerger

Abstract


Recent work in the economic development literature has established sizable variations across nations in the relative wage for management, defined as the average wage for managers divided by the average wage for other workers, and provided evidence that the high relative wage for managers in lower income nations depresses productivity in those nations. This research explores if the same relationships exist solely across industries within the United States using an annual data set of 228 industries for years 2002–2020. As in the development literature, more variation is found across industries in the earnings for all other workers than for management, along with sizable variation across industries in the relative wage for management. Across the 228 industries in any year, the relative wage for management at the 10th/90th percentiles is near 2.0 and 3.2 respectively. Also, a robust positive link is found between managements’ employment share in an industry and the average wage of all other workers which is evidence of complementarity between management and the skill level of other workers in an industry. Lastly, evidence for nonlinearities over the sample period is found in the relationship between the growth rate of managements’ share of employment and labor productivity growth. Industries with lower rates of growth in managements’ share of employment exhibit a negative linkage with labor productivity growth, but this switches to a positive linkage with labor productivity growth for industries with higher growth rates for managements’ share of employment. Potential factors driving this result are discussed.

Keywords: skill-biased management, management relative wage, performance, productivity, management effectiveness.


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