Economic Segmentation, Worker Power, and Income Inequality

Abstract

How economic segmentation generates income inequality constitutes a central question for theories of economic and social organization and of socioeconomic achievement. Previous research emphasizes two sources of the structural variation in income: (1) employers with large amounts of resources, for a variety of reasons, may find it in their interests to pay workers higher wages; and (2) some workers are able to acquire power against their employers as well as against other workers and can therefore extract higher earnings. In this paper, we investigate several issues involved in the links among economic segmentation, worker power, and income inequality. We argue that the structure of economic segmentation is multidimensional and reflects such distinct concepts as concentration, economic scale, state intervention in the market, capital intensity, and organization size. Worker power also is derived from diverse sources, such as union membership, occupational skill and licensing, class position, and tenure with an employer. We construct measures of these two sets of concepts and examine their relationships and effects on income with data from two national samples of individuals. We also relate economic segmentation to issues raised by the socioeconomic achievement literature; in particular, we find that the effect of education on income differs among firm and industrial contexts. Our analyses illustrate the utility of an economic segmentation approach for explaining structural sources of income inequality.