Unequal Organizations or Unequal Attainments? An Empirical Comparison of Sectoral and Individualistic Explanations for Aggregate Inequality

Abstract

Explanations derived from the sectoral perspective in sociology and the humancapital-screening perspectives in economics are used to predict income inequality in the American states. The sectoral perspective is represented by an indicator of the dispersion of concentration in product markets across manufacturing establishments within each state and by the dispersion of employment across enterprises in eight size categories. Individualistic explanations favored by neoclassical economists are operationalized with the dispersion in educational attainments and by the dispersion in the age-experience of the labor force. With the percentage of blacks and three additional variables in the equations, four hypotheses receive consistent support. The strongest determinant of income inequality is the dispersion in educational attainments, but the indicator of concentration is significant in all equations. States with more blacks and greater variance in establishment size also were likely to be comparatively unequal. These results are consistent with both the individualistic emphasis in the neoclassical perspective and the emphasis on economic power in the sectoral perspective. They also indicate that studies of income inequality by human capital economists may have been biased by a failure to control for the institutional variables that are emphasized in sectoral theories.