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Privatization, Entry Regulation and the Decline of Labor's Share of GDP: A Cross-Country Analysis of the Network Industries

  • Ghazala Azmat
  • Alan Manning
  • John Van Reenen

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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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0806.

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Date of creation: Jun 2007
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Handle: RePEc:cep:cepdps:dp0806
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  7. Anastasia Guscina, 2006. "Effects of Globalization on Labor’s Share in National Income," IMF Working Papers 06/294, International Monetary Fund.
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  9. Harrison, Ann, 2005. "Has Globalization Eroded Labor’s Share? Some Cross-Country Evidence," MPRA Paper 39649, University Library of Munich, Germany.
  10. Daron Acemoglu, 2000. "Labor- and Capital- Augmenting Technical Change," NBER Working Papers 7544, National Bureau of Economic Research, Inc.
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  12. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
  13. Dean Baker & Andrew Glyn & David Howell & John Schmitt, 2002. "Labor Market Institutions and Unemployment: A Critical Assessment of the Cross-Country Evidence," SCEPA working paper series. SCEPA's main areas of research are macroeconomic policy, inequality and poverty, and globalization. 2002-17, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
  14. repec:oup:qjecon:v:111:y:1996:i:1:p:195-226 is not listed on IDEAS
  15. 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.
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