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Labor's Share, the Firm's Market Power and TFP

Robert Dixon and Guay Lim

Melbourne Institute Working Paper Series from Melbourne Institute of Applied Economic and Social Research, The University of Melbourne

Abstract: In this paper we investigate the relationship between labor’s share, the market power of firms and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time-varying estimates of the market power and the elasticity. Evidence on the evolution of the market power of firms contributes to a deeper understanding of movements in labor’s share and of the firm’s contribution to the labor wedge. The generated values of the elasticity also yield revised estimates of US TFP growth which is informative about the (non-trivial) bias inherent in traditional estimates of TFP growth which use the wage share as a proxy for the elasticity.

Keywords: Labor’s share; market power; TFP growth; labor wedge; state-space modelling (search for similar items in EconPapers)
JEL-codes: C32 E25 O47 (search for similar items in EconPapers)
Pages: 38pp
Date: 2017-09
New Economics Papers: this item is included in nep-com
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https://melbourneinstitute.unimelb.edu.au/__data/a ... 477377/wp2017n22.pdf (application/pdf)

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Working Paper: Labor’s Share, the firm’s market power and TFP (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:iae:iaewps:wp2017n22

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