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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.

Suggested Citation

  • Ghazala Azmat & Alan Manning & John Van Reenen, 2007. "Privatization, Entry Regulation and the Decline of Labor's Share of GDP: A Cross-Country Analysis of the Network Industries," CEP Discussion Papers dp0806, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp0806
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    Cited by:

    1. Fiorio, Carlo V. & Florio, Massimo, 2011. "«Would you say that the price you pay for electricity is fair?» Consumers' satisfaction and utility reforms in the EU15," Energy Economics, Elsevier, vol. 33(2), pages 178-187, March.
    2. Maarek, Paul, 2012. "Labor share, informal sector and development," MPRA Paper 38756, University Library of Munich, Germany.
    3. Georgios Argitis & Stella Michopoulou, 2011. "Are Full Employment and Social Cohesion Possible Under Financialization?," Forum for Social Economics, Springer;The Association for Social Economics, vol. 40(2), pages 139-155, July.
    4. Bassanini, Andrea & Brunello, Giorgio, 2011. "Barriers to entry, deregulation and workplace training: A theoretical model with evidence from Europe," European Economic Review, Elsevier, vol. 55(8), pages 1152-1176.
    5. Antonio Bassanetti & Roberto Torrini & Francesco Zollino, "undated". "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.
    6. Nicholas Bloom & Luis Garicano & Raffaella Sadun & John Van Reenen, 2014. "The Distinct Effects of Information Technology and Communication Technology on Firm Organization," Management Science, INFORMS, vol. 60(12), pages 2859-2885, December.
    7. Luciano BOGGIO & Vincenzo DALL’AGLIO & Marco MAGNANI, 2010. "On Labour Shares in Recent Decades: A Survey," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 118(3), pages 283-333.
    8. 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.
    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. Askenazy, P. & Cette, G. & Maarek, P., 2012. "Rent building, rent sharing - A panel country-industry empirical analysis," Working papers 369, Banque de France.
    11. Carlo V. Fiorio & Massimo Florio, 2010. "A Fair Price for Energy? Ownership versus Market Opening in the EU15," CESifo Working Paper Series 3124, CESifo.
    12. Dorothee Schneider, 2011. "Bargaining, Openness, and the Labor Share," SFB 649 Discussion Papers SFB649DP2011-068, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    13. Mario Mansour & Mr. Michael Keen, 2009. "Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization," IMF Working Papers 2009/157, International Monetary Fund.

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    More about this item

    Keywords

    Profit share; Wages; Privatization; Entry Regulation;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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