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The Declining Worker Power Hypothesis: An explanation for the recent evolution of the American economy

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  • Anna Stansbury
  • Lawrence H. Summers

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 pr ofit 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.

Suggested Citation

  • Anna Stansbury & Lawrence H. Summers, 2020. "The Declining Worker Power Hypothesis: An explanation for the recent evolution of the American economy," NBER Working Papers 27193, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27193
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    References listed on IDEAS

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    1. Christopher R. Bollinger & Barry T. Hirsch, 2006. "Match Bias from Earnings Imputation in the Current Population Survey: The Case of Imperfect Matching," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 483-520, July.
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    3. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July.
    4. repec:eee:labchp:v:2:y:1986:i:c:p:921-999 is not listed on IDEAS
    5. Kambourov, Gueorgui & Manovskii, Iourii, 2013. "A Cautionary Note On Using (March) Current Population Survey And Panel Study Of Income Dynamics Data To Study Worker Mobility," Macroeconomic Dynamics, Cambridge University Press, vol. 17(1), pages 172-194, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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