The Fall of the Labor Share and the Rise of Superstar Firms*

Author:

Autor David1,Dorn David2,Katz Lawrence F3,Patterson Christina4,Van Reenen John5

Affiliation:

1. Massachusetts Institute of Technology and National Bureau of Economic Research

2. University of Zurich and Centre for Economic Policy Research

3. Harvard University and National Bureau of Economic Research

4. University of Chicago Booth School of Business and National Bureau of Economic Research

5. Massachusetts Institute of Technology and London School of Economics

Abstract

AbstractThe 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 typically rely on industry or macro data, obscuring heterogeneity among firms. In this article, we analyze micro panel data from the U.S. Economic Census since 1982 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 push sales toward the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) 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; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms but also internationally. We find support for all of these predictions.

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics

Reference102 articles.

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2. “Identification Properties of Recent Production Function Estimators”;Ackerberg;Econometrica,2015

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5. “Information Frictions, Broadband Internet and the Relationship between Distance and Trade”;Akerman,2017

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