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

Autor, David, Dorn, David, Katz, Lawrence F., Patterson, Christina and Van Reenen, John (2020) The fall of the labor share and the rise of superstar firms. Quarterly Journal of Economics, 135 (2). 645 – 709. ISSN 0033-5533

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Identification Number: 10.1093/qje/qjaa004

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 article, 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 toward the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value added. 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.

Item Type: Article
Official URL: https://academic.oup.com/qje
Additional Information: © 2020 The Authors
Divisions: Economics
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E25 - Aggregate Factor Income Distribution
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Date Deposited: 19 May 2020 15:51
Last Modified: 11 Aug 2020 15:00
URI: http://eprints.lse.ac.uk/id/eprint/104480

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