Abstract
Over the past 30 years, labor’s share of GDP in industrialized countries has fallen. This means that a declining fraction of aggregate income is going to workers, while firm owners obtain more. This policy brief explains this phenomenon by identifying so-called superstar firms as drivers of the falling labor share. It spotlights rising concentration in various industries, characterized by a ‘winner take most’ feature, in which a small number of
companies gain increasingly large market shares, with consequent advantages to their profitability. Such superstar companies, which often achieved their primacy thanks to technological prowess and innovation, only have to spend a relatively small proportion of their revenues on wages and salaries. As these companies grow, revenues and profits rise at faster rates than personnel expenses. The rising dominance of superstar firms in the economy therefore shifts the distribution of income in favor of firm owners, while the income share of employees declines.
Dorn, David