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Market Power and Labor Share

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  • Arthur Bauer

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)

  • Jocelyn Boussard

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, Directorate General for Economic and Financial Affairs (DG ECFIN) - European Commission)

Abstract

Secular trends in market power and labor share have important implications for inequality and allocative efficiency. Studying them requires comprehensive and detailed firm-level data spanning several decades. For that purpose, we leverage a novel and detailed database on the universe of French firms between 1984 and 2016, that we use to document a rise in concentration in France since the beginning of the 1990s. Despite a relative stability of the aggregate labor share, we show that larger firms with lower labor shares have been gaining market shares, especially in industries where concentration increased the most. We rely on markups as proxies of firm-level market power, and on a flexible production function that allows the identification of firm-specific output elasticities and markups. We find that the markup of the typical firm has decreased, but the reallocation of market shares toward larger firms contributed to an increase of the aggregate markup. Finally, we show how taking into account reallocation across firms is essential to understand how the aggregate market power evolution has shaped the dynamics of the aggregate labor share in France.

Suggested Citation

  • Arthur Bauer & Jocelyn Boussard, 2020. "Market Power and Labor Share," Working Papers hal-02353137, HAL.
    • Handle: RePEc:hal:wpaper:hal-02353137
    Note: View the original document on HAL open archive server: https://hal.science/hal-02353137v5
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    References listed on IDEAS

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    1. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
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    Citations

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    Cited by:

    1. Matteo G. Richiardi & Luis Valenzuela, 2024. "Firm heterogeneity and the aggregate labour share," LABOUR, CEIS, vol. 38(1), pages 66-101, March.
    2. Panon, Ludovic, 2022. "Labor share, foreign demand and superstar exporters," Journal of International Economics, Elsevier, vol. 139(C).
    3. repec:spo:wpecon:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    4. Alessandro Bellocchi & Giovanni Marin & Giuseppe Travaglini, 2021. "The Great Fall of Labor Share:Micro Determinants for EU Countries Over 2011-2019," Working Papers 2102, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2021.
    5. repec:spo:wpmain:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    6. repec:hal:wpspec:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    7. repec:hal:spmain:info:hdl:2441/5j3i17uo7399t940lrt6h6n545 is not listed on IDEAS
    8. Sebastian Zalas & Hubert Drążkowski, 2023. "The Evolution of the Labour Share in Poland: New Evidence from Firm-Level Data," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 13-33.
    9. Mathias Lé & Frédéric Vinas, 2020. "The Financing of Investment: Firm Size, Asset Tangibility and the Size of Investment," Working papers 777, Banque de France.
    10. Anatolijs Prohorovs & Julija Bistrova, 2022. "Labour Share Convergence in the European Union," Economies, MDPI, vol. 10(9), pages 1-21, August.

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    More about this item

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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