Monday, August 27, 2018 at 11:40am to 1:10pm
Ives Hall, 115
B07 Tower Rd, Ithaca, NY 14853, USA
David Dorn (University of Zurich)
The Fall of the Labor Share and the Rise of Superstar Firms
Working Paper, with David Autor, Lawrence Katz, Christina Patterson and John Van Reenen
Abstract: 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.