IDE Seminar - April 26 - John Van Reenen

John Van Reenen “The Fall of the Labor Share and the Rise of Superstar Firms”

(with David Autor, MIT and NBER; David Dorn, University of Zurich; Lawrence F. Katz, Harvard University and NBER; Christina Patterson, MIT)

Abstract: 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 of trends in labor's share typically have relied on industry or macro data, which obscure the role potentially played by firms and establishments. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document some empirical patterns that support a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profit margins and a low share of labor in firm value-added and sales. As the importance of superstar firms increases, the aggregate labor share will fall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; 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; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.

Biography: John Van Reenen is a jointly appointed Professor of Applied Economics at the MIT Sloan School of Management and in the Department of Economics.

From October 2003 to July 2016 John Van Reenen was Professor of Economics at the London School of Economics and the Director of the Centre for Economic Performance, Europe’s leading applied economics research centre.

In 2016 he received the Medal of the Order of the British Empire for services to Economics and Public Policy Making, and in 2009 was awarded the Yrjö Jahnsson Award, the European equivalent to the US Bates Clark Medal.

Van Reenen has published widely on the economics of innovation, labor markets and productivity. He has been a senior policy advisor to the Secretary of State for Health, Downing Street, and for many international organizations. He has also been a Visiting Professor at the University of California at Berkeley, Stanford and at Harvard University, a Research Fellow at the Institute for Fiscal Studies, a Professor at University College London, a partner in Lexecon Ltd. (now CRAI), and Chief Technology Officer of a software start-up.

Van Reenen holds a BA in economics and social and political sciences from Queens College, University of Cambridge, an MSc in industrial relations from the London School of Economics, and a PhD from University College London in economics.