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Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution

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  • Joachim Hubmer
  • Pascual Restrepo

Abstract

While the US labor share has declined, especially in manufacturing and retail, the labor share of a typical firm in these sectors has risen. This paper introduces a model where firms incur fixed costs to automate tasks. In response to lower capital prices, the model reproduces the labor share patterns observed in the data: large firms automate more tasks, reducing the aggregate labor share; while the median firm continues to operate a labor-intensive technology with a rising labor share. Using our model, we decompose the labor share decline and the rise in sales concentration in each sector into a part driven by lower capital prices and a part driven by reallocation to higher-markup firms. Reallocation played a minor role in explaining the labor share decline in manufacturing and some role in retail and other sectors during 1982–2012.

Suggested Citation

  • Joachim Hubmer & Pascual Restrepo, 2021. "Not a Typical Firm: The Joint Dynamics of Firms, Labor Shares, and Capital–Labor Substitution," NBER Working Papers 28579, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28579
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    Cited by:

    1. Bonfiglioli, Alessandra & Crinò, Rosario & Gancia, Gino, 2021. "Concentration in international markets: Evidence from US imports," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 19-39.
    2. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    3. Daron Acemoglu & Gary W. Anderson & David N. Beede & Catherine Buffington & Eric E. Childress & Emin Dinlersoz & Lucia S. Foster & Nathan Goldschlag & John C. Haltiwanger & Zachary Kroff & Pascual Res, 2022. "Automation and the Workforce: A Firm-Level View from the 2019 Annual Business Survey," NBER Chapters, in: Technology, Productivity, and Economic Growth, National Bureau of Economic Research, Inc.
    4. Guimarães, Luís & Mazeda Gil, Pedro, 2022. "Explaining the Labor Share: Automation Vs Labor Market Institutions," Labour Economics, Elsevier, vol. 75(C).

    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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