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Joint Industrial Organization & CICER Workshop - Daniel Berkowitz

Wed, 03/15/2017 - 11:40am

Daniel Berkowitz

University of Pittsburgh

498 Uris Hall

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Labor shares have been declining around the world since the 1980s and there are several explanations for this. Karabarbounis and Neiman (2014) highlight the role of a high substitutability between capital and labor that enables firms to easily replace labor with capital as the rental-wage ratio falls. However, Acemoglu and Robinson (2015) argue that political factors shaping the evolution of institutions can be more important than the automation of production processes. Using firm-level data from China, we study the relative importance of capital-labor substitution and  institutional changes. To account for firm-level heterogeneity, we examine the evolution of labor-share distributions during 1998-2007. We find that labor market reforms in the state sector and product market de-regulation that smoothed the way for the rapid growth of the private sector can explain the majority of the decline in labor shares. Our results for China are consistent with the findings in Autor et al (2017) for the United States that the emergence of "superstar" firms that are large, have high markups and low labor shares drive declining labor shares.

Event Categories: Industrial Organization