Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution

Joachim Hubmer and Pascual Restrepo

No 28579, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: While the US labor share has declined, especially in manufacturing and retail, the labor share of a typical firm in these sectors has risen. This paper introduces a model where firms incur fixed costs to automate tasks. In response to lower capital prices, the model reproduces the labor share patterns observed in the data: large firms automate more tasks, reducing the aggregate labor share; while the median firm continues to operate a labor-intensive technology with a rising labor share. Using our model, we decompose the labor share decline and the rise in sales concentration in each sector into a part driven by lower capital prices and a part driven by reallocation to higher-markup firms. Reallocation played a minor role in explaining the labor share decline in manufacturing and some role in retail and other sectors during 1982–2012.

JEL-codes: E22 E23 E24 E25 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-bec, nep-eff, nep-lma, nep-mac and nep-tid
Note: EFG LS PR
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