Privatization and the Decline of Labour's Share: International Evidence from Network Industries

Abstract

Some authors have suggested that deregulation of product and labour markets is responsible for the decline in Labour's share of GDP. A simple model predicts that privatization is associated with a lower labour share, due to job shedding. We test this hypothesis by focusing on privatization of network industries in the OECD. We find that, on average, privatization accounts for a fifth of the fall of Labour's share, and over half in Britain and France. This is due to lower employment, but it is partially offset by higher wages and falling barriers to entry, which dampen profit margins.

The Global Decline of the Labor Share*

“…Azmat, Manning, and Van Reenen (2012) explore deregulations in the network industry to further advance this argument.…”

Investigating Capitalism Aversion

“…A first very obvious testing ground for such hypothesis is to look at privatizations. Investigating network industries, Azmat et al (2007) find that labour's share decreases with privatization, which indicates that state ownership biased hiring decisions towards more employment. But such effects also show in private firms.…”

“…In their study of network industries, Azmat et al (2007) find that the share of output that is appropriated by suppliers of capital -one minus labour's share -tends to decline when measures competition increases. This fact is perfectly consistent with standard economic intuition.…”

Systemic value creation in knowledge organizations: aspects of a theory

“…Modular global manufacturing is unified and coordinated using new ICT. In other words, it may be imagined that the overall design of the product is ready (Azmat et al, 2012;Hsieh & Klenow, 2007).…”