Superstar Firms Means Less For Labour

superstar firms
Chart showing the factors accounting for a change in labor share of value added in manufacturing, 1982-2012. Source: David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen http://www.nber.org/digest/aug17/w23396.shtml

A paper by David Autor, David Dorn, Lawrence F. Katz, Christina Patterson, John Van Reenen titled The Fall of the Labor Share and the Rise of Superstar Firms makes for an interesting read. The argument can be understood as follows:

  • Labour’s share of GDP has declined. The causes however remain uncertain.
  • During the period of declining labour share of GDP, technological has improved and globalisation continued.
  • These create conditions for “superstar firms” to increase their share of markets.
  • When industry sales are concentrated among a small group of leading firms, a decline in labour share is observed.
  • Almost all countries that experience a decline in labor’s share of income that is primarily due to the expansion of large firms.
  • The authors describe this as a  reallocation of sales between firms rather than a general fall in the labor share within incumbent firms.
  • The implication is that superstar firms have a higher share of markets (maybe even paying workers more than average) but that the overall share of labour goes down.

It is argument that has value, as it raises questions on whether a restructuring of sales (a more egalitarian distribution of sales, just to sound fancy and mix ideologies) may lead to a greater share for labour.  Or perhaps, it is all inevitable and that we must focus on a UBI.

The abstract reads as follows.

The fall of labor’s share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments of trends in labor’s share typically have relied on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profits and a low share of labor in firm value-added and sales. As the importance of superstar firms increases, the aggregate labor share will tend to fall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.

A very useful non-technical summary is also available.

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