Testing the Fat and Mean Thesis

Abstract

Purpose – David Gordon (1996) contended that the size of the managerial/administrative class has expanded in recent decades and that this has contributed to growing earnings inequality. This argument, however, has received insufficient attention despite its potential to explain some of the growth of earnings inequality in recent decades. We assess whether managerial intensity contributes to earnings inequality in affluent democracies, and thus evaluate his argument and extend it with a comparative perspective. Methodology/approach – Our analyses are based on panel analyses of 17 affluent democracies from 1973 to 2004. Utilizing random- and fixed-effects models, we include three different measures of earnings inequality and an original measure of managerial intensity. Findings: We show that managerial intensity is positively associated with all three measures of earnings inequality in random-effects models. As well, managerial intensity is positively associated with earnings inequality in the fixed-effects models for the 90/50 ratio of earnings inequality, but is not significant for the other two measures. Originality/value – This study provides one of the few tests of Gordon's argument. We demonstrate that growing managerial intensity has contributed to rising earnings inequality in affluent democracies. In contrast to previous research, we argue that much of the rise of earnings inequality is due to political/institutional factors rather than labor market and demographic change. One of the reasons for Europe's relatively lower level of and slower increase in earnings inequality is its lower managerial intensity.