The Firms behind the Labor share: Heterogeneity and concentration in market share amongst Danish firms
Historically, most developed economies have shared a common stylized fact: The share of GDP going to labor has been remarkably constant at around 2/3. However, over the past decade the labor share has gradually declined Karabarbounis and Neiman, 2013). The fundamental reason for this remains unknown, but scholars have presented a number of hypotheses ranging from automation to changes in market power. To understand the root cause of this shift one needs to look at the labor shares of individual firms. Kehrig and Vincent (2017) use microdata for the US manufacturing industry and show a remarkable shift in the underlying distributions of firms’ labor share and size (measured by value added): In the 1970s there was next to no correlation between firm size and labor share and the largest firms mirrored the overall economy with a labor share of around 2/3. In recent years a strong negative correlation between size and labor share has emerged and a substantial part of overall value-added now comes from firms with very low labor shares. It appears that firms in the US manufacturing sector are now better able to scale up in size without a corresponding increase in payments to labor.It remains unknown why.