Disentangling Various Explanations for the Declining Labor Share: Evidence from Millions of Firm Records

Ann Harrison

No 19767, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper uses millions of records from a cross-country and time series database of establishments for France, Germany, Hungary, Sweden, and South Korea to disentangle the role of technological change, intangible assets, market power, and globalization in driving changes in the labor share. This is the first paper using global micro data to embed all 4 drivers of labor share changes in the same framework. As is standard, labor shares are measured as the share of total remuneration to workers in value-added. Technological change is captured using research and development expenditures. Market power is measured using four firm and twenty firm concentration ratios and globalization is measured as export shares in total revenues. The evidence suggests that between 1995 and 2019 important drivers of falling labor shares were globalization and technological change. The impact of market power as measured by four firm concentration ratios is mixed and depends on the country institutional context.We also disentangle the drivers of labor share changes by exploring the determinants of labor demand and wages. Labor demand is significantly and negatively associated with market concentration and technological change, but positively associated with globalization. In contrast, wages are negatively associated with globalization.

Date: 2024-12
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