Territorial market power as a source of inequalities in the automation era

By reducing the importance of labour to firms and increasing the returns to wealth, automation generally decreases the labour share of income. This effect can vary depending on the degree of sectoral market concentration, as highlighted in the literature through the superstar firms’ hypothesis. This paper argues that, beyond sectoral market power, factors linked to spatial heterogeneity may also shape the relationship between automation and the labour share, particularly the presence of highly specialised and geographically clustered firms. More specifically, if the regional market structure is characterised by monopolistic behaviours of local firms, a territorial market power effect may take place, exerting a further detrimental role on the labour share of income. Based on a large-scale analysis of the manufacturing sector in European NUTS-2 regions in the period 2011–19 and the estimation of a pooled ordinary least squares regression, the paper confirms a sectoral market power effect and proves the existence of a territorial market power effect when automation is introduced in highly specialised regions. These results are further reinforced by empirical evidence showing the automation-related detrimental effects on the labour share of income in highly concentrated regional markets.