Market Power and Labor Share

Arthur Bauer (1) , Jocelyn Boussard (1, 2)

1 CREST - Centre de Recherche en Économie et Statistique
2 Directorate General for Economic and Financial Affairs (DG ECFIN)

Secular trends in market power and labor share have important implications for inequality and allocative efficiency. Studying them requires comprehensive and detailed firm-level data spanning several decades. For that purpose, we leverage a novel and detailed database on the universe of French firms between 1984 and 2016, that we use to document a rise in concentration in France since the beginning of the 1990s. Despite a relative stability of the aggregate labor share, we show that larger firms with lower labor shares have been gaining market shares, especially in industries where concentration increased the most. We rely on markups as proxies of firm-level market power, and on a flexible production function that allows the identification of firm-specific output elasticities and markups. We find that the markup of the typical firm has decreased, but the reallocation of market shares toward larger firms contributed to an increase of the aggregate markup. Finally, we show how taking into account reallocation across firms is essential to understand how the aggregate market power evolution has shaped the dynamics of the aggregate labor share in France.

Domaines: Economies et finances

Arthur Bauer, Jocelyn Boussard. Market Power and Labor Share. 2020. ⟨hal-02353137v5⟩