BPEA | 1993: Microeconomics 2

Fat: The Displacement of Nonproduction Workers from U.S. Manufacturing Industries

discussants: Henry S. Farber and
Henry S. Farber Princeton University
Michelle J. White
Michelle J. White University of California, San Diego

Microeconomics 2, 1993

IN THE LONG RUN American industry has relied increasingly on nonproduction staff, yet in the last decade many white-collar employees have been squeezed out of large corporations in the name of increased efficiency. Were exceptional shocks and competitive pressures responsible for inducing corporate weight-loss campaigns? How could administrative “fat” have accumulated in the first place? That large, successful corporations tend to acquire bloated staffs is a commonplace in popular discourse, and many economists give credence to this behavior when they seek (and find) favorable effects on productivity of management buyouts, “refocusing” of diversified enterprises, the excision of layers of supervisory management, and other reorganizations put forth as means to improve productivity. Yet only with caution does one maintain any hypothesis about productivity shortfall or technical inefficiency, lest one seem ignorant of the Law of Cash-Strewn Footpaths: if cost-efficiency could be improved, somebody would already have profited by improving it.