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Market Power, Productivity and Sectoral Labour Shares in Europe

Author

Listed:
  • Martina Lawless

    (Economic and Social Research Institute (ESRI))

  • Luke Rehill

    (Department of Finance)

Abstract

The stability of the labour share of income is a fundamental feature of many macroeconomic models. Empirically however, the labour share varies considerably across countries and across sectors within countries. In addition, gradual declines in the labour share have been documented in many countries leading to much debate on the causes of the reduction. This paper examines several of the potential drivers of variation in the labour share across countries and sectors in Europe. Beginning with a simple shift-share analysis, we demonstrate that observed changes has been primarily driven by changes within rather than between sectors. We then use aggregated microdata to investigate the strength of correlation between sectoral distributions of labour shares and measures of productivity and market power. Our main findings are that the advance of globalisation and a widening productivity gap from the rise of “superstar firms” are negatively related to the labour share, and that this negative relationship is stronger for the reallocation margin within sectors compared to its link to between sector reallocation.

Suggested Citation

  • Martina Lawless & Luke Rehill, 2022. "Market Power, Productivity and Sectoral Labour Shares in Europe," Open Economies Review, Springer, vol. 33(3), pages 453-476, July.
    • Handle: RePEc:kap:openec:v:33:y:2022:i:3:d:10.1007_s11079-021-09653-3
    DOI: 10.1007/s11079-021-09653-3
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    References listed on IDEAS

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    Cited by:

    1. Ugur, Mehmet, 2023. "Innovation, market power and the labour share: evidence from OECD industries," Greenwich Papers in Political Economy 38374, University of Greenwich, Greenwich Political Economy Research Centre.

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    More about this item

    Keywords

    E25; O40; F62;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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