The fall of the labor share and the rise of superstar firms

David Autor, David Dorn, Lawrence Katz, Christina Patterson and John van Reenen

CEP Discussion Papers from Centre for Economic Performance, LSE

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 typically rely 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 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 towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms. Since these firms have high markups and a low labor share of value-added and sales, a reallocation of output toward superstar firms depresses the aggregate labor share. 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.

Keywords: labour share; concentration; superstar firms (search for similar items in EconPapers)
JEL-codes: J3 (search for similar items in EconPapers)
Date: 2017-05-05
New Economics Papers: this item is included in nep-lma, nep-ltv and nep-tid
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Citations: View citations in EconPapers (356)

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https://cep.lse.ac.uk/pubs/download/dp1482.pdf (application/pdf)

Related works:
Journal Article: The Fall of the Labor Share and the Rise of Superstar Firms* (2020)
Working Paper: The fall of the labor share and the rise of superstar firms (2020)
Working Paper: The Fall of the Labor Share and the Rise of Superstar Firms (2017)
Working Paper: The fall of the Labor share and the rise of superstar firms (2017)
Working Paper: The Fall of the Labor Share and the Rise of Superstar Firms (2017)
Working Paper: The Fall of the Labor Share and the Rise of Superstar Firms (2017)
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