Who Bosses Whom?

The Intensity of Supervision and

the Discipline of Labor
By
DAVID M. GORDON*
The first person is called an em-
ployer and the second an employee.
Calling the employer the boss is a cus-
tom derived from the fact that the
"boss" specifies the particular task.
One could have called the employee
the boss because he orders the em-
ployer to pay him a specific sum if he
wants services performed. But words
are words.
[Armen Alchian and William Allen,
1969, p. 320]
There now appears to be considerable
convergence of interest between "modem"
neoclassical and recent neo-Marxian analy-
ses of the labor process, with both traditions
paying increasing attention to the organiza-
tion of production. (See for example, Francis
Green, 1988.)
Despite this new attention to "command"
structures governing production in the capi-
talist firm, however, remarkably few econo-
mists have yet analyzed one central element
in that command structure-the "intensity
of supervision," the ratio within the firm's
hierarchy of supervisory to production-
worker inputs. Legions of workers hang from
supervisory rungs on the U.S. occupational
ladder- agents of the "bosses," peering over
the shoulders of their subordinates, poking
and prodding, cajoling and commanding,
managing and manipulating those below
them in the production hierarchy. What do
these supervisors do? Where do they sit and
fit in relation to the more familiar categories
of labor and management, employee and
employer, worker and boss?
This paper reports on some initial explo-
rations of the determinants of the intensity
of supervision. The first section defines the
intensity of supervision and presents sum-
mary data on trends and variations. The
second section derives some skeletal analytic
expectations about the determinants of su-
pervisory intensity, highlighting conflicting
expectations between efficiency-wage and
labor-discipline models. The third section
briefly reports results on some econometric
tests of those analytic expectations for the
United States both across manufacturing in-
dustries and over time for the private non-
agricultural economy.' A final section com-
ments on implications for further research.
1. Definitions and Trends
Following the lead of much of the recent
literature on "shirking" and labor effort, we
might compactly define supervisory inputs as
those wage-and-salary employees of a firm
with considerable if not primary responsibil-
ity for monitoring the labor effort of those
below them in the firm's hierarchy, especially
including the labor effort of production
workers.
The closest approximation to measure-
ment of these supervisory inputs available
on a consistent and continuous basis for the
United States comes from the Bureau of
Labor Statistics (BLS) decomposition of
total private nonagricultural employment
into two exhaustive and mutually exclusive
categories: one group of "production
and related workers in manufacturing and
mining, construction workers in construc-
*Department of Economics, Graduate Faculty, New
School for Social Research, 65 Fifth Ave., New York,
NY 10003. Effusive thanks to Subhash Gupta, David
Howell, and Bruce Pietrykowski for their help in mobi-
lizing some of the data for this exploration.
'Space limitations preclude reporting more than a
few highlights of these specifications and results. A
longer version of this paper, with detailed results and
with a Data Appendix, is available from the author.
28
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VOL. 80 NO. 2 NEW ECONOMICS OF PERSONNEL 29
tion, and nonsupervisory employees in pri-
vate service-producing industries" (U.S. De-
partment of Labor, 1989, p. 143); and the
residual excluded category of nonproduc-
tion/nonconstruction/supervisory employ-
ees. I shall label the ratio of nonproduction
to production employees, defined by these
BLS categories, as the NonProduction Index
of Supervisory Intensity
(sNp).
By this mea-
sure, there were 24 nonproduction employ-
ees for every 100 production workers in the
United States in 1988.
Despite the obvious appeal of this mea-
sure, many included in the nonproduction
category may have little or nothing to do
with direct employee supervision. Two other
more delimited definitions of the intensity of
supervision are available for the United
States on an intermittent, discontinuous ba-
sis. 1) It is possible to determine those occu-
pations that are rated in the Dictionary of
Occupational Titles to be proximately in-
volved in directly supervisory activities and
those that are directly supervised, permitting
an alternative index of supervisory intensity.
In 1985, by this measure, there were 15.5
employees in supervisory occupations for ev-
ery 100 employees not in those occupations.
2) At least for the purposes of much more
explicit focus on the point batallions of the
supervisory army, we can concentrate on
workers in manufacturing in the decennial
Census 3-digit category of "foremen, not
elsewhere classified (nec)." In 1985 in manu-
facturing, there were 5.1 foremen for every
100 workers not in supervisory occupations.
Figure 1 traces the NonProduction Index
of Supervisory Intensity, highlighting its dra-
matic increase from .144 in 1951 to .237 in
1988, an increase of roughly two-thirds.
Panel A of Table 1 displays data for the
three different definitions of supervisory
workers as a percent of total employment in
the private nonagricultural sector (and in
manufacturing for the category of foremen,
nec). All three measures reflect significant
increases in the intensity of supervision
through most of the period of observation
with two of the three continuing to rise in
the early 1990s.
Panel B traces an overlapping category of
all "administrative and managerial employ-
0.23-
0.22-
0.21-
0.20
0.19-
0.18-
Ratio Of Non-Production Employees
0.17- to Production ~Workers,
Private Non-Agriculs Sector
0.16-
51 55 59 63 67 71 75 79 83 87
FIGURE 1. THE "INTENSITY OF SUPERVISION"
IN THE UNITED STATES, 1951-88
TABLE 1-THE INTENSITY OF SUPERVISION IN THE
UNITED STATES AND OTHER ADVANCED
COUNTRIES, 1950-85
A. United States,
Alternative
Measures 1950 1960 1970 1980 1985
NonProd. Employees
as % Pvt. NonAg.
Employ. 12.3 16.0 17.4 18.7 19.2
Employees Supervisory
Occs. as % Pvt.
NonAg. Employ. 12.4 12.0 11.7 13.7 14.4
Foremen, nec as %
Manufacturing Employ. 3.5 4.2 5.0 5.4 4.2
B. Selected Countries,
Admin. & Managerial
Employees as %
NonAg. Employ. 1960 1970 1980 1985
United States 6.6 8.7 11.4 11.7
Japan 3.9 5.9 5.2 4.0
West Germany 2.6 2.5 2.8 4.1
Sweden 2.1 2.6 2.9 2.7
ees" as a percent of nonagricultural employ-
ment for the United States, Japan, West
Germany, and Sweden, based on consistent
translations of individual countries' occupa-
tional/industry censuses into standardized
definitions. 1) For each of the years pre-
sented, proportionate employment in admin-
istrative and managerial employees was much
higher in the United States than in the other
three advanced economies. 2) Employment
in this category grew much more rapidly as a
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30 AEA PAPERS AND PROCEEDINGS MA Y 1990
share of private nonagricultural employment
in the United States than in any of the
others. Why are the legions of supervisory
employees so vast and relatively growing in
the United States?
II. Analytic Expectations
According to almost all of the recent liter-
ature highlighting variable labor effort, su-
pervisory inputs are necessary to monitor
both the intensity of labor services provided
by production workers and the effectiveness
of monitoring activities by their immediate
supervisors. (See Carl Shapiro and Joseph
Stiglitz, 1984; and Samuel Bowles, 1985, for
examples.) This allows us to write a standard
"effort" or "extraction" function:
(1) I*
=
1*(
*
s) 9
where l* is labor intensity, w* is the wage
premium paid to workers to elicit work ef-
fort, and s is the intensity of supervision.
Following Bowles, the firm chooses the op-
timal intensity of supervision which satis-
fies the first-order conditions (I */l,!.)
=
ws
where
ws
is the hourly cost of a supervisory
input, or the supervisory wage. At a mini-
mum, following this logic, we might write a
functional expression for the determinants
of supervisory intensity as
(2) s =
s(W*,
ws,
Z),
where Z represents a vector of other factors
affecting the labor extraction function 1*(-).
In order to begin investigating the determi-
nants of supervisory intensity, such a skele-
tal model would simply require fleshing out
the vector Z and stipulating sign expecta-
tions about the first partials of the supervi-
sory-intensity function,
sw., sw,
and
sz.
At this point in the investigation, however,
we confront a clear difference of empha-
sis between models emphasizing "efficiency
wages" and those emphasizing "labor disci-
pline." In many (though not necessarily all)
efficiency-wage models, wage incentives are
thought to constitute a sufficient inducement
for workers to augment their labor effort
without complementary supervision. In labor-
discipline models, by contrast, wage incen-
tives can extract labor effort only if comple-
mented by supervision; if workers were not
observed in their work, given conflicts of
interest between employers and production
employees, they would have no incentive to
increase their labor effort even in return for
a higher wage payment.
This leads to opposite expectations for the
sign of the cross derivative between the in-
tensity of supervision and the wage premium
inducing labor effort. In many efficiency-
wage models, the cross partial within equa-
tion (1) is normally postulated to be nega-
tive:
1*W*.,
< 0. (See, for example, Jonathan
Leonard, 1987, equation [4], p. S142.) In
labor discipline models, by contrast, the wage
premium and supervisory intensity are stipu-
lated as having a positive cross partial:
I*W*.S
> 0. (See, for example, Bowles, p. 23 and
notes 14, 15.) Thus, in analyses of the inten-
sity of supervision, we might reasonably dis-
tinguish between the two approaches by em-
pirical evidence on the sign of
sW*
in (2): for
efficiency-wage models, we expect
SW*
<0,
while for labor-discipline models, we expect
sW*
> 0.
III. Econometric Explorations
A. Interindustry Variations
In the absence of direct micro data on
firms' supervisory efforts, cross-sectional data
on industries may come closest to providing
an appropriate arena for testing these ana-
lytic expectations about the determinants of
supervision. I report here on cross-sectional
analysis of sixty-eight 3-digit manufacturing
industries for which relevant data were avail-
able on a continuous basis between 1958 and
1981. Given the data available, it was possi-
ble to test for five kinds of possible determi-
nants of the intensity of supervision: the
effects of variation in capacity utilization; in
wage premia or rents, measured by varia-
tions in the "cost of job loss"; the probabil-
ity of dismissal from the job; relative worker
independence, proxied by the quit rate and
union density; and the relative importance
of other factor inputs, encompassing both
capital intensity and materials intensity.
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VOL. 80 NO. 2
NEW ECONOMICS OF PERSONNEL
31
TABLE 2-SELECTED DETERMINANTS OF INTENSITY OF
SUPERVISION ACROSS MANUFACTURING INDUSTRIES
Coefficients
Cost of Union Adj.
Job Loss Density R2
1966 l.55a -0.002b 0.360
1970 1.60a -0.002b 0.296
1973 0.59 -0.003a 0.376
1975 1.93b -0.005a 0.368
1979 0.50 - 0.001 0.424
aSignificant at 1 percent on two-tailed tests.
bSignificant at
5
percent on two-tailed tests.
In the first set of explorations, I tested for
consistency among the three alternative in-
dices of supervisory intensity initially de-
fined in Section I by regressing each of those
dependent variables on the same estimating
equation for 1970. Despite considerable dif-
ferences among these alternative dependent
variables, the labor-discipline model receives
strong and relatively robust support in all
three equations. Of special interest, the co-
efficient on the cost of job loss is posi-
tive and significant in all three equations,
supporting expectations derived from the
labor-discipline model about the effect of
wage premia.
The NonProduction Index of Supervisory
Intensity is by far the easiest of these mea-
sures to use, since it is available on a contin-
uous and consistent basis for the entire
(private nonfarm) economy. Heartened from
this first experiment that models of variable
labor effort appear to be as useful in explain-
ing variations in
SNp
as for the other two
more explicit measures, I further estimated
equations with the NonProduction Index of
Supervisory Intensity as the dependent vari-
able for business-cycle troughs and peaks
from 1966 through 1979.
Table 2 summarizes some of the highlights
of these estimations, reporting on coeffi-
cients and significance for measures of wage
premia (the cost of job loss) and worker
independence (union density), as well as the
adjusted R2 for the equations, for these five
business-cycle turning points. Two results
highlighted in the table seem most relevant
for the purposes of this brief report:
1) The efficiency-wage model receives
no support. In none of the five regressions is
the coefficient on the wage-premium variable
negative and significant. It is positive and
significant (at least at 5 percent) in three of
the five equations.
2) The usefulness of the labor-discipline
perspective appears to decline over time. By
the 1979 peak, neither of the two variables in
Table 2 have significant coefficients. This
appears at least partly to reflect some con-
vergence late in the period in structures of
supervision across industries; this may indi-
cate, in turn, increasingly general reliance
across industries, regardless of its effective-
ness at the margin, on supervisory inputs as
part of a more general "management offen-
sive against labor" (see my study with Bowles
and Thomas Weisskopf, 1990, chs. 5-6).
B. Variations Over Time
I next report on results of a time-series
analysis of the NonProduction Index of Su-
pervisory Intensity for the private nonfarm
sector for the postwar period from 1951
through 1987. The model estimated is de-
rived from the same basic model as for
the cross-sectional estimations and contains
roughly the same independent variables.
All independent variables have their ex-
pected signs and are statistically significant,
further reinforcing impressions that labor-
effort models may be useful for explaining
variations in supervisory intensity. The co-
efficient on the cost of job loss is positive
and significant (at 1 percent), further con-
firming expectations of the labor-discipline
model and confounding those derived from
the efficiency-wage approach. The model ex-
plains nearly all of annual variations in the
NonProduction Index of Supervisory Inten-
sity, with an adjusted R2 of 0.991, without
reliance on either a linear time trend or an
autoregressive error-term adjustment.
IV. Conclusions
Who bosses whom? The relatively more
harmonious emphases of "efficiency-wage"
approaches and the relatively more conflict-
ual accents of labor-discipline models pro-
ject different expectations about the pro-
cesses generating variations in the intensity
of supervision.
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32 AEA PAPERS AND PROCEEDINGS MA Y1990
The results reported here provide strong
(but entirely provisional) support for the la-
bor-discipline model. It would appear that
bosses need supervisors in many situations
because they cannot induce desired levels of
labor effort without them-no matter how
tasty the wage-premia carrots they may dan-
gle in front of their workers.
But much more work needs to be pursued
along many directions: A broader range of
possible determinants of supervisory inten-
sity needs to be considered in cross-sectional
analyses and a broader spectrum of indus-
tries needs to be examined. Time-series anal-
yses should be conducted not merely for the
aggregate (private nonfarm) economy but
also for disaggregated sectors and industries.
Perhaps most critically, we need urgently to
pursue cross-national comparisons: Why are
supervisory armies relatively so vast in the
United States? What role (if any) has this
(apparently) conffictual style of labor man-
agement played in the eroding global com-
petitiveness of the United States?
I have tried in this short paper to provide
a case for taking supervisors seriously. There
are millions of them. They apparently serve
important economic functions. We should
learn much more about them.
REFERENCES
Alchian, Armen A. and Allen, William R., Ex-
change and Production: Theory in Use,
Belmont: Wadsworth, 1969.
Bowles, Samuel, "The Production Process in a
Competitive Economy: Walrasian, Neo-
Hobbesian, and Marxian Models," Ameri-
can Economic Review, March 1985, 75,
16-36.
, Gordon, David M. and Weisskopf,
Thomas E., After the Waste Land: A demo-
cratic economics for the year 2000, Ar-
monk: M. E. Sharpe, forthcoming 1990.
Green, Francis, "Neoclassical and Marxian
Conceptions of Production," Cambridge
Journal of Economics, September 1988, 12,
299-312.
Leonard, Jonathan S., "Carrots and Sticks:
Pay, Supervision, and Turnover," Journal
of Labor Economics, October 1987, Part 2,
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Shapiro, Carl and Stiglitz, Joseph E., " Equi-
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