LABOR'S SHARE, THE FIRM'S MARKET POWER, AND TOTAL FACTOR PRODUCTIVITY

Robert John Dixon · GUAY C. LIM

9 citations0/0 files storedEconomic Inquiry

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Economic Theory and Policy Labor market dynamics and wage inequality Economic Growth and Productivity

Abstract

We investigate the relationship between labor's share, firm's market power, and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time‐varying estimates of market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor's share and the labor wedge. The generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor's share as a proxy for the elasticity. (JEL O47, C32, E25)

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References

2014Capital in the Twenty-First Century 2013The Global Decline of the Labor Share*2002Getting Income Shares Right 2002Dissecting the cycle: a methodological investigation 1997Returns to Scale in U.S. Production: Estimates and Implications 2016Uncertainty shocks are aggregate demand shocks 2013The Decline of the U.S. Labor Share 2017The Rise of Market Power and the Macroeconomic Implications

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