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| This article investigates how changing production processes and increasing market power at the firm level relate to a fall in Germany’s manufacturing sector labour share. Coinciding with the fall of the labour share I document a rise in firms’ product and labour market power. Notably labour market power is a more relevant source of firms’ market power than product market power. Increasing product and labour market power however only account for 30% of the fall in the labour share. The remaining 70% are explained by a transition of firms towards less labour-intensive production activities. I study the role of final product trade in causing those secular movements. I find that rising foreign export demand contributes to a decline in the labour share by increasing labour market power within firms and by inducing a reallocation of economic activity from nonexporting-high-labour-share to exporting-low-labour-share firms. |
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