Micro-mechanisms behind declining labour shares : market power, production processes, and global competition / Matthias Mertens
VerfasserMertens, Matthias
ErschienenHalle (Saale), Germany : Halle Institute for Economic Research (IWH), Member of the Leibniz Association, [25. Februar 2019]
Umfang1 Online-Ressource (III, 74 Seiten, 1,85 MB) : Diagramme
SerieIWH-CompNet discussion papers ; 2019, no. 3 (February 2019)
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Micro-mechanisms behind declining labour shares [1.85 mb]
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.