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Firm heterogeneity and the aggregate labour share

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  • Matteo G. Richiardi
  • Luis Valenzuela

Abstract

We propose a model‐based decomposition method for the aggregate labour share in terms of the first moments of the joint distribution of total factor productivity, market power, wages and prices, and apply it to UK manufacturing using firm‐level data for 1998–2014. Contrary to a narrative focussing on increasing disparities between firms, the observed decline in the aggregate labour share over the period is driven entirely by the decline in the labour share of the representative firm, mostly due to an increasing disconnect between average productivity and real wages. Changes in the dispersion of firm‐level variables have contributed to slightly contain this decline.

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  • Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    • Handle: RePEc:bla:labour:v:38:y:2024:i:1:p:66-101
    DOI: 10.1111/labr.12265
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    18. Mertens, Matthias, 2021. "Labour market power and between-firm wage (in)equality," IWH Discussion Papers 13/2020, Halle Institute for Economic Research (IWH), revised 2021.
    19. Reshef, Ariell & Santoni, Gianluca, 2023. "Are your labor shares set in Beijing? The view through the lens of global value chains," European Economic Review, Elsevier, vol. 155(C).
    20. Ensar Yılmaz & Zeynep Kaplan, 2022. "Heterogeneity of market power: firm-level evidence," Economic Change and Restructuring, Springer, vol. 55(2), pages 1207-1228, May.
    21. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    22. Geoff Weir, 2018. "Wage Growth Puzzles and Technology," RBA Research Discussion Papers rdp2018-10, Reserve Bank of Australia.

    More about this item

    JEL classification:

    • D20 - Microeconomics - - Production and Organizations - - - General
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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