In this paper the author argues that the decline in the labour share of the economy has not been offset by an increase in the capital share in the US.

Over the last 30 years we have witnessed a large decline in the labour share of gross value added. There have been many explanations advanced for this – such as technological change, mechanization, capital accumulation, changes in the relative price of capital, trade-offs between labour and capital – in which  the decline in the labour share is offset by an increase in the capital share. The author disputes this view, and argues that instead there has been a large increase in the profit share in the U.S. non-financial corporate sector over the last 30 years.

  • The paper begins with a review of the literature on the decline of the labour share, and describes how that literature tends to explain that this decline has been off-set by an increase in the capital share. The author then reviews a couple of papers that find that increases in the capital share do not suffice to offset the decline in the labour share – and that the capital share might even have decreased slightly. He tend presents his own results, which show a large decline in the capital share. While stating that more research is required on this, the author concludes that, when taken together, the large decline in the cost of capital and the constant investment rate suggest that the capital share may be declining globally.
  • In Section 3, the author interprets the simultaneous decline in the shares of labour and capital through the lens of a standard general equilibrium model. The model is based on two important assumptions: first, production is homogeneous in capital and labour; and second, labour and capital inputs fully adjust to their long-run levels. It is argued that, if we accept the assumptions of the model, then we are led to conclude that the decline in the shares of labour and capital are caused by an increase in mark-ups.
  • Section 4 tries to provide empirical support for the hypothesis that an increase in mark-ups plays a significant role in the decline of the labour share (and, one would assume, capital share as well). Since he is unable to directly measure mark-ups, the author tries to do this by using market concentration as a proxy for mark-ups – assuming that an increase in concentration captures increases in mark-ups. His analysis purports to show that those industries that experience larger increases in concentration also experience larger declines in the labour share. Univariate regressions suggest that the increase in industry concentration can account for the entire decline in the labour share.

As is the case with the papers on the wider implications of larger market concentration / increased inequality / growing share of earnings from profits as oppose to labour,  I am not qualified to comment on the methods or results of this paper. There is quite a bit of literature and debate going on which will undoubtedly do that.

My analysis will stick to the reasons for mentioning this paper in the first place. The point is to show that there is a body of literature that assigns significant responsibility for a number of politically-sensitive social ills (lower labour share of the economy, stagnating wages, increasing inequality, etc.) to an increasing share of profits which, in turn, is said to result from lack of competition / increased market concentration.

As a rule, this is not necessarily an antitrust problem. However, antitrust has both the internal “flexibility” to deal this problem (even if it would require a large change in the fundamentals of the discipline as they have been understood since the 1970s), and may even be perceived as the best available option by political decision-makers, either on its own or coupled with other regulatory mechanisms. In other words, the fundamentals of competition are under pressure not only internally, from the alternative schools of thought I’ve been documenting, but also externally. Work in other disciplines could feed into that pressure, particularly if they are picked up by political movements more widely.


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