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The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy

Anna Stansbury and Lawrence Summers

No 27193, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.

JEL-codes: E02 E2 E25 J01 J3 J31 J42 J51 L12 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-hme, nep-lma, nep-ltv and nep-mac
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