Tuesday, May 28, 2019
The following paper studies three main questions: First, What is the association between increasing concentration and labor and profit shares? Second, is this effect different across sectors? Third, is this effect uniform across advanced economies? The paper finds that while there is a negative relationship between concentration and labor share and a positive relationship between concentration and profit share, the result is more pronounced in the United States than in similar advanced European economies. Moreover, the results are stronger for the manufacturing sector than for the services sector. The paper concludes that this evidence suggests that deviations from perfect competition are likely explained by declining competition in the U.S., whereas these secular trends, such as heterogeneous technology adoption and the declining price of capital, are more likely at play in Europe. Consequently, the paper prioritizes pre-distribution over redistribution.