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Privatization, entry regulation and the decline of labor's share of GDP: a cross-country analysis of the network industries

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  • Ghazala Azmat
  • Alan Manning
  • John Van Reenen

Abstract

Labor’s share of GDP in most OECD countries has declined over the last two decades. Some authors have suggested that these changes are linked to deregulation of product and labor markets. To examine this we focus on a large quasi-experiment in the OECD: the privatization of many network industries (e.g. telecommunications and utilities). We present a model with agency problems, imperfect product market competition and worker bargaining which makes clear predictions on how the labor share, employment and wages respond to privatization and other regulatory changes. We exploit cross-country panel data on several network industries and find that privatization can account for a significant proportion of the fall of labor’s share (a fifth overall, but over half in Britain and France). The impact of privatization has been offset by falling barriers to entry, which consistent with theory, dampens profit margins.

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File URL: http://eprints.lse.ac.uk/4552/
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 4552.

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Length: 58 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:ehl:lserod:4552

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Keywords: Profit share; Wages; Privatization; Entry Regulation;

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References

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  1. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
  2. Bentolila Samuel & Saint-Paul Gilles, 2003. "Explaining Movements in the Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-33, October.
  3. Alberto Alesina & Silvia Ardagna & Giuseppe Nicoletti & Fabio Schiantarelli, 2002. "Regulation and Investment," Boston College Working Papers in Economics 549, Boston College Department of Economics.
  4. Stephen Nickell, 2003. "A picture of European unemployment: success and failure," LSE Research Online Documents on Economics 20039, London School of Economics and Political Science, LSE Library.
  5. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
  6. Postel-Vinay, Fabien & Turon, Hélène, 2005. "The Public Pay Gap in Britain: Small Differences That (Don’t?) Matter," CEPR Discussion Papers 5296, C.E.P.R. Discussion Papers.
  7. Caballero, R.J. & Hammour, M.L., 1997. "Jobless Growth: Appropriability, Factor-Substitution, and Unemployment," Working papers 97-18, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Roberto Torrini, 2005. "Profit share and returns on capital stock in Italy: the role of privatisations behind the rise of the 1990s," LSE Research Online Documents on Economics 19915, London School of Economics and Political Science, LSE Library.
  9. Rose, Nancy L, 1987. "Labor Rent Sharing and Regulation: Evidence from the Trucking Industry," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1146-78, December.
  10. Andrew Glyn, 2003. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," Economics Series Working Papers 168, University of Oxford, Department of Economics.
  11. Andrews, Martyn & Simmons, Robert, 1995. "Are Effort Bargaining Models Consistent with the Facts? An Assessment of the Early 1980s," Economica, London School of Economics and Political Science, vol. 62(247), pages 313-34, August.
  12. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
  13. Anastasia Guscina, 2006. "Effects of Globalizationon Labor's Share in National Income," IMF Working Papers 06/294, International Monetary Fund.
  14. Van Reenen, John, 1994. "The Creation and Capture of Rents: Wages and Innovation in a Panel of UK Companies," CEPR Discussion Papers 1071, C.E.P.R. Discussion Papers.
  15. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Dorothee Schneider, 2011. "Bargaining, Openness, and the Labor Share," SFB 649 Discussion Papers SFB649DP2011-068, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Georgios Argitis & Stella Michopoulou, 2011. "Are Full Employment and Social Cohesion Possible Under Financialization?," Forum for Social Economics, Springer, vol. 40(2), pages 139-155, July.
  3. Carlo V. Fiorio & Massimo Florio, 2010. "A Fair Price for Energy? Ownership versus Market Opening in the EU15," CESifo Working Paper Series 3124, CESifo Group Munich.
  4. Askenazy, P. & Cette, G. & Maarek, P., 2012. "Rent building, rent sharing - A panel country-industry empirical analysis," Working papers 369, Banque de France.
  5. Poggi, Ambra & Florio, Massimo, 2010. "Energy deprivation dynamics and regulatory reforms in Europe: Evidence from household panel data," Energy Policy, Elsevier, vol. 38(1), pages 253-264, January.
  6. Luciano Boggio & Vincenzo Dall'Aglio & Marco Magnani, 2009. "On Labour Shares in Recent Decades: A Survey," DISCE - Quaderni dell'Istituto di Teoria Economica e Metodi Quantitativi itemq0957, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  7. Bloom, Nicholas & Garicano, Luis & Sadun, Raffaella & Van Reenen, John, 2013. "The distinct effects of Information Technology and Communication Technology on firm organization," CEPR Discussion Papers 9762, C.E.P.R. Discussion Papers.
  8. Mario Mansour & Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa," IMF Working Papers 09/157, International Monetary Fund.
  9. Chi, Wei & Qian, Xiaoye, 2013. "Regional disparity of labor's share in China: Evidence and explanation," China Economic Review, Elsevier, vol. 27(C), pages 277-293.
  10. Antonio Bassanetti & Roberto Torrini & Francesco Zollino, . "Changing Institutions in the European Market: the Impact on Mark-ups and Rents Allocation," Working Papers 11, Department of the Treasury, Ministry of the Economy and of Finance.
  11. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.

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