Capital Share Dynamics When Firms Insure Workers

Hartman‐Glaser, Barney; Lustig, Hanno; Xiaolan, Mindy Z.

doi:10.3386/w22651

Cited by 17 publications

(14 citation statements)

References 64 publications

(62 reference statements)

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“…Furman and Orszag (2015) notes that the distribution of capital returns-inversely related to the labor share-had shifted up and became more skewed toward high-return firms. Hartman-Glaser, Lustig, and Zhang (2019) study Compustat data and find a similar dichotomy between the aggregate and average capital share that we find in the labor share data. They explain the rise in the aggregate capital share through increasingly risky firm productivity.…”

Section: Relation To the Literaturesupporting

confidence: 71%

The Micro-Level Anatomy of the Labor Share Decline*

Kehrig

Vincent

2021

The Quarterly Journal of Economics

110

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The labor share in U.S. manufacturing declined from 61% in 1967 to 41% in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 percentage points during the same period. Using micro-level data, we document five salient facts: (i) since the 1980s, there has been a dramatic reallocation of value added toward the lower end of the labor share distribution; (ii) this aggregate reallocation is not due to entry/exit, to “superstars” growing faster, or to large establishments lowering their labor shares, but is instead due to units whose labor share fell as they grew in size; (iii) low labor share (LL) establishments benefit from high revenue labor productivity, not low wages; (iv) they also enjoy a product price premium relative to their peers; and (v) they have only temporarily lower labor shares that rebound after five to eight years. This transient pattern has become more pronounced over time, and the dynamics of value added and employment are increasingly disconnected. Taken together, we interpret these facts as pointing to a significant role for demand-side forces.

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Section: Relation To the Literaturesupporting

confidence: 71%

The Micro-Level Anatomy of the Labor Share Decline*

Kehrig

Vincent

2021

The Quarterly Journal of Economics

110

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“…This is hard to explore in Compustat data, however, because only a minority of firms reports payroll data which is not a mandatory reporting item. Looking among the firms that do report payroll, we find that globally engaged firms have somewhat higher labor shares and that the average labor share of globally engaged firms has fallen since 1982 (see also Hartman-Glaser, Lustig and Zhang, 2017). However, the labor share has fallen only slightly more among globally-engaged than nonglobally engaged firms.…”

Section: Vb Compustat Analysis: Publicly Listed Superstar Firmsmentioning

confidence: 86%

The Fall of the Labor Share and the Rise of Superstar Firms

et al. 2017

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The fall of labor's share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of "superstar firms." If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms. Since these firms have high markups and a low labor share of value-added and sales, a reallocation of output toward superstar firms depresses the aggregate labor share. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm's markup; and (vii) these patterns should be observed not only in U.S. Firms, but also internationally. We find support for all of these predictions.

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“…22 This is also the case for unincorporated businesses, whose owners invest time in accumulating intangible capital for their businesses, such as building the client list or brand equity (Bhandari and McGrattan (2020)). 23 The divergence of the labor compensation in measurements and in theory is also the subject of study in Hartman-Glaser, Lustig, and Xiaolan (2019), Bhandari and McGrattan (2020), Eisfeldt, Falato, and Xiaolan (2020), and Smith et al (2019). However, not all the literature studying equity compensation focuses on IPPrelated employees, which is our concern here.…”

Section: Discussionmentioning

confidence: 99%