Post on 28-Jun-2020
transcript
Deaton Inequality Review: Firms and Inequality
John Van Reenen, CEP,LSE and MIT
AEA San Diego 2010
Why look at firms at all in an Inequality Review?
• Much evidence that firms matter a lot for worker outcomes such as wages (Van Reneen, ‘96; Abowd et al ’99; Card et al, ‘13; Kline et al, ‘19)
• Big changes in business landscape have accompanied large increase in US inequality over past 40 years & stagnation of real median wages.
─ Are these connected?
─ If so, in what ways?
─ And how should policy respond?
What’s been happening to firms in last 40 years in US?
• Essentially, inequality between firms has increased dramatically on a number of dimensions
─ Firm Size
─ Industrial concentration
─ Productivity
─ Average firm wages
• Decrease in labor share
• Increase in markups of price over marginal costs
Firms getting bigger since mid ’80s: % JOBS in firms with over 5,000 workers (up from 28% in 1987 to 34% in 2016)
Source: BDS https://www.census.gov/programs-surveys/bds/data/data-tables/2016-firm-and-estab-release-tables.html
Latest:34%
The Rise of Mega Firms
Source: Autor, Dorn, Katz, Patterson & Van Reenen (2017), Compustat
Global Sales of Top500 US Firms tripled from $4 trillion in 1972 to $12 trillion in 2015
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Top3 in 1985
Top3 in 2015
Rising Concentration in SIC4 within all sectors
6065
7075
Top
20 C
once
ntra
tion
3436
3840
4244
Top
4 C
once
ntra
tion
1980 1990 2000 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in ManufacturingAverage Concentration
Manufacturing Retail Trade
2530
3540
45To
p 20
Con
cent
ratio
n
1015
2025
30To
p 4
Con
cent
ratio
n
1980 1990 2000 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in Retail TradeAverage Concentration
2030
4050
60To
p 20
Con
cent
ratio
n
1015
2025
30To
p 4
Conc
entra
tion
1980 1990 2000 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in Wholesale TradeAverage Concentration
Wholesale Trade
1820
2224
2628
Top
20 C
once
ntra
tion
810
1214
16To
p 4
Con
cent
ratio
n
1980 1990 2000 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in ServicesAverage Concentration
Services
5658
6062
64To
p 20
Con
cent
ratio
n
2530
3540
Top
4 C
once
ntra
tion
1990 1995 2000 2005 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in Utilities and TransportationAverage Concentration
Utilities + Transportation
4550
5560
Top
20 C
once
ntra
tion
2025
3035
Top
4 Co
ncen
tratio
n
1990 1995 2000 2005 2010year
CR4 with Sales CR4 with EmploymentCR20 with Sales CR20 with Employment
4−digit Industries in FinanceAverage Concentration
Finance
Notes: Economic Census. Weighted av. of concentration across the SIC-4’s within each sector. 676 SIC4 industries. Source: Autor, Dorn, Katz, Patterson & Van Reenen (forthcoming QJE)
Rising US productivity dispersion (manufacturing)
Source: Decker, Haltiwanger, Jarmin & Miranda (2018, Figure A6)Notes: Standard Deviation of log(real sales/employment) normalized in a NAICS 6 digit industry-year. HP filtered series in dashed lines. LBD is population whereas ASM is corrected for sample selection. Weights are employment weights.
Source: Song et al (2019), SSA data
Change in individual US earnings inequality is a between firm (rather than within firm) phenomena, 1981-2013
Except for “CEO”, Noincrease in inequalitywithin firms
US Labor Share of GDP
Source: BLS https://www.bls.gov/opub/mlr/2017/article/estimating-the-us-labor-share.htm
Rising aggregate markups among US publicly listed corporations
Source: de Loecker, Eeckhout and Unger (forthcoming, QJE)
Aggregate Markup rises, driven by reallocation. Median firm markup stable
Notes: Autor, Dorn, Katz, Patterson & Van Reenen (forthcoming, QJE). Manufacturing Census;Panel A: Antras et al (2017) method; B-D use production function, de Loecker and Warzynski (2012).
Aggregate markup(weighted average)
Aggregate markup(weighted average)
Aggregate markup(weighted average)
Aggregate markup(weighted average)
What are the possible links between business trends & household inequality?
1. Rise in superstar firms helps explain fall of share of labor in GDP (Autor et al, QJE, forthcoming)
─ Large firms have lower labor share of value added (more productive, higher mark ups)
─ As concentration rises, weight of economy shifts to these firms, reducing aggregate labor share
─ Falling labor share a force for household inequality as capital income more unequally distributed than labor income
2. If product market competition lower, this is likely to reduce productivity and pay growth. But has competition really fallen?3. Even if no change in competition, there may still a concern with firm size per se (e.g. political economy)4. Monopsony over labor & other suppliers?5. Complex relationship between firm and individual inequality.
Potential Explanations for business trends
1. Weaker US anti-trust. Philippon ‘19 on falling competition
2. Google/Apple Story. Increased importance of platform competition (network effects, especially in digital markets)
3. Wal-Mart Story. Higher Fixed costs – e.g. Larger firms better at exploiting intangible capital; like proprietary software – Eberly & Crouzet ‘18
4. Increasing competition – Globalization, Internet-based price comparisons; lower communication costs,
• Key Policy Point: Even if firms have become dominant through competing on the merits, doesn’t mean they will continue to do so
─ Anti-trust rules do need modernization (work with Tirole)
Are these trends US specific or more general?
• Active area of research, but my take is that best evidence suggests that the trends are pretty global
• Implies that changes in US-specific institutions such as weak enforcement of anti-trust unlikely to be the main explanation of these business trends
─ Although certainly true in some industries (e.g. healthcare)
Jones (2015) US=1
Like US, Sales Concentration seems to have has also increased in the EU
Source: OECD Multiprod, https://www.oecd.org/sti/ind/multiprod.htm; Criscuolo (2018)Notes: Year effects from regressions with country-industry dummies and year dummies (BEL, DEU, DNK, FIN, FRA, HUN,NOR, PRT, SWE)
Labor Share falling (and markups rising) in many Countries
Karabarbounis and Neiman, 2014
.55
.6.6
5.7
Labo
r S
hare
1975 1985 1995 2005 2015
United States
.55
.6.6
5.7
Labo
r S
hare
1975 1985 1995 2005 2015
Japan
.35
.4.4
5.5
Labo
r S
hare
1975 1985 1995 2005 2015
China
.55
.6.6
5.7
Labo
r S
hare
1975 1985 1995 2005 2015
Germany
FIGURE II
Declining Labor Share for the Largest Countries
The figure shows the labor share and its linear trend for the four largest economies in the world from 1975.
GL
OB
AL
DE
CL
INE
OF
TH
EL
AB
OR
SH
AR
E71
Rising Firm Markups (Price/marginal cost) around the world
Source: de Loecker and Eeckhout (2018), Worldscope; Publicly listed firms
Conclusions
• Dramatic changes in business landscape in the US and other developed countries
─ Increasing inequality in size (concentration up), productivity and wages
─ Aggregate markups also appear to be rising
• Multiple possible links to evolution of firm inequality to disparities between people
• Explanation for trends still unclear. ─ A general story or more industry specific?
• Policy response must be built on this analysis.
Back Up
Payroll share of Value Added (NIPA)
Source: Diez, Leigh and Tambunlerctcchai (2019), IMF; Publicly listed firms
Rising Firm Markups (Price/marginal cost) around the world
Bigger firms have higher TFP
Big Firms have higher markups