Labor income share and imperfectly competitive product market

Shim Hyein, Chung Chune Young and Ryu Doojin ()
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Shim Hyein: Fiscal Information Research Center, Korea Public Finance Information Service, Seoul, Republic of Korea
Chung Chune Young: School of Business Administration, Chung-Ang University, Seoul, Republic of Korea
Ryu Doojin: Department of Economics, Sungkyunkwan University, Jongno-gu, Seoul 03063, Republic of Korea

The B.E. Journal of Macroeconomics, 2018, vol. 18, issue 1, 16

Abstract: This study examines the long-run determinants of the income distribution between capital and labor in the Korean market, a leading emerging market. We develop a model of a special type of oligopolistic market, controlled by a group of dominant firms, and a general oligopolistic market, with heterogeneously sized firms. This model provides empirically testable implications related to the long-run determinants of the income distribution. Using two measures of the degree of market concentration, the k-firm concentration ratio (CRk) and the Hirschman–Herfindahl index (HHI), we find a negative association between these concentration measures (CRk and HHI) and the labor income share. In addition, analyzing a unique dataset of manufacturing firms based on five- and three-digit Korean Standard Industry Classifications from 2000 to 2011, we find a significantly negative relationship between the labor income share and the market concentration, which is consistent with the implications of the model. Overall, our results suggest that building a more competitive product market environment could alleviate national income inequality.

Keywords: imperfect competition; income distribution; labor income share; market concentration (search for similar items in EconPapers)
JEL-codes: D33 E25 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1515/bejm-2016-0188

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