The Relative Skill Demand of Superstar Firms and Aggregate Implications

This paper proposes a new reason for why the relative demand for skilled workers has increased over past decades. I suggest that increases in market concentration and the rise of superstar firms may be important causes for the rise in demand for skill. I use detailed employer-employee data for the Swedish manufacturing sector between 1997 and 2014 to validate my hypothesis. My analysis demonstrates a strong correlation between firm size and the skilled share of a firm’s worker mix. The slope of this relationship is at its steepest in the right tail of the size distribution. I also, as Autor et al. (2017b), find a substantial rise in market concentration in Swedish manufacturing, both in the aggregate and across sub-sectors. The rise in market concentration is strongly correlated with a rise in the relative usage of skilled workers. Furthermore, a majority of the change in skill usage is due to between-firm variation, a reallocation of production across firms. This supports the notion that market concentration, rather than a general skill upgrading across all firms, has caused the rise in skill demand. Finally, the reallocation of production was most pronounced in industries characterized by large increases in market concentration. I estimate that about a tenth of the rise in the usage of skilled labor in Swedish manufacturing is due to the increasing importance of the largest firms.