Results for “the Labor Share” 287 found
Superstar firms and market concentration
A new paper by Autor, Dorn, Katz, Patterson and Van Reenen (some real heavyweights) rebuts the notion that market concentration is rising because of inadequate antitrust concentration:
The fall of labor’s share of GDP in the United States and many other countries in recent decades is we ll documented but its causes remain uncertain. Existing empirical assessments typically rely on industry or macro data obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added. We empirically assess seven predictions of this hypothesis: (i) industry sales will increasingly concentrate in a small number of firms; (ii) industries where concentration rises most will have the largest declines in the labor share; (iii) the fall in the labor share will be driven largely by reallocation rather than a fall in the unweighted mean labor share across all firms; (iv) the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; (v) the industries that are becoming more concentrated will exhibit faster growth of productivity; (vi) the aggregate markup will rise more than the typical firm’s markup; and (vii) these patterns should be observed not only in U.S. firms, but also internationally. We find support for all of these predictions.
Here is coverage from Peter Orszag. As I’ve said before, people are opting for Philippon’s Great Reversal story because of ideology and convenience and mood affiliation, but it is not supported by the facts.
Human Capitalists
That is the title of a new and important paper by Andrea L. Eisfeldt, Antonio Falato, and Mindy Z. Xiaolan. It seems that perhaps the share of labor in gdp has not fallen much after all:
The widespread and growing practice of equity-based compensation has transformed high-skilled labor from a pure labor input into a class of “human capitalists”. We show that high-skilled labor income in the form of equity claims to firms’ future dividends and capital gains has dramatically increased since the 1980s. Indeed, in recent years, equity-based compensation represents almost 45% of total compensation to high-skilled labor. Ignoring such income results in incorrect measurement of the returns to high-skilled labor, with important implications for macroeconomics. Including equity-based compensation to high-skilled labor cuts the total decline in the labor share since the 1980’s by over 60%, and completely reverses the decline in the high skilled labor share to an increase of almost 1%. Correctly measuring the return to high-skilled labor can thus resolve the puzzling lack of a skill premium in recent data, as well as the corresponding lack of evidence of complementarity between high-skilled labor and new-economy physical capital. Moreover, tackling the capital structure question of who owns firms’ profits is necessary to provide a link between changing factor shares and changing income and wealth shares. We use an estimated model to understand the rise of human capitalists in an economy with declining capital goods prices. Finally, we present corroborating cross section and time series evidence for complementarity between high-skilled labor and physical capital using our corrected measure of the total return to human capitalists.
Since smart people are bearing more and more risk, this may be another reason why income inequality is rising.
Via the excellent Kevin Lewis.
Does New Keynesian economics fit the facts?
In the New Keynesian model, demand shocks induce deviations from flexible-price allocations, which in turn drive inflation. It follow that our main business-cycle shock is consistent with the New Keynesian model only if the cycles it induces are characterized by a strong comovement between the real quantities and inflation.
We instead find that the main business-cycle shock is nearly orthogonal to inflation at all frequencies. For instance, the shock that targets unemployment accounts for almost 70% of the business-cycle variation in that variable and only for 10% of the business-cycle variation in inflation. And conversely, the shock that targets inflation explains 80% of thee business-cycle variation in inflation and only 9% of thee business-cycle variation in unemployment.
A similar disconnect is present between inflation and the labor share, an often-used proxy of the real marginal cost in the New Keynesian literature.
That is from a new working paper by George-Marios Angeletos, Fabrice Collard, and Harris Dellas. The authors conclude that the data most likely suggest a demand-driven story, but with a lesser role for nominal rigidities and Phillips curves.
Sentence of the Day
…we show that the industries where concentration has risen the most are also those where there has been the fastest growth in productivity and innovation.
From Van Reenen and Patterson at HBR based on The Fall of the Labor Share and the Rise of Superstar Firms.
Claims about electricity adoption and technological unemployment
This is from a recent working paper (pdf) by Miguel Morin:
When the adoption of a new labor-saving technology increases labor productivity, it is an open question whether the economy adjusts in the medium-term by decreasing employment or increasing output. This paper studies the effects of cheaper electricity on the labor market during the Great Depression. The first-stage of the identification strategy uses geography as an instrument for changes in the price of electricity and the second-stage uses labor market outcomes from the concrete industry—a non-traded industry whose location decisions are independent of the instrument. The paper finds that electricity was an important labor-saving technology and caused an increase in capital intensity and labor productivity, as well as a decrease in the labor share of income. The paper also finds that firms adjusted to higher labor productivity by decreasing employment instead of increasing output, which supports the theory of technological unemployment.
You will note of course that the short-, medium- and long-run effects here are quite different, and of course electricity is a major boon to mankind. Still, technological unemployment is not just the fantasy of people who have failed to study Ricardo.
Here is a short summary of the paper, via Romesh Vaitilingam.
Mask Mandate Costs
There is now an NBER working paper on this topic:
This paper presents the results from a hypothetical set of questions related to mask-wearing behavior and opinions that were asked of a nationally representative sample of over 4,000 participants in early 2022. Mask mandates were hotly debated in public discourse, and though much research exists on benefits of masks, there has been no research thus far on the distribution of perceived costs of compliance. As is common in economic research that aims to assess the value to society of non-market activities, we use survey valuation methods and ask how much participants would be willing to pay to be exempted from rules of mandatory community masking. The survey asks specifically about a 3 month exemption. We find that the majority of respondents (56%) are not willing to pay to be exempted from mandatory masking. However, the average person was willing to pay $525, and a small segment of the population (0.9%) stated they were willing to pay over $5,000 to be exempted from the mandate. Younger respondents stated higher willingness to pay to avoid the mandate than older respondents. Combining our results with standard measures of the value of a statistical life, we estimate that a 3 month masking order was perceived as cost effective through willingness-to-pay questions only if at least 13,333 lives were saved by the policy.
That is by Patrick Carlin, Shyam Raman, Kosali I. Simon, Ryan Sullivan, and Coady Wing. A few comments:
1. Willingness to be paid magnitudes are often much higher than willingness to pay numbers. Especially when issues of justice and desert are involved. I know some people who might say: “I have a right to refuse a mask. I’m not going to pay anything not to wear one, but you would have to pay me a million dollars to put it on.” There are less extreme versions of this view, noting that even in quite normal laboratory circumstances WTBP can be 5x higher than WTP.
2. For many people the value of masking — either positively or negatively — depends on what others do. Some might feel “I guess I can wear a mask, but if you make everyone do that, that is a gross Orwellian dystopia.” Others, perhaps leaning more to the political left, might say: “I am willing to do my share, but of course I expect the same from everyone else. Let us sing this collective song and with our masks dance to the heavens!”
3. Why not just look at what private sector establishments chose when the force of law was not present? Don’t they have the best sense of how to internalize all the different factors behind what their customers want? Of course the answer here will vary, depending on what stage of the pandemic we are in.
Data on private security forces
From a recent paper:
We bring novel data to bear on these questions, presenting the largest empirical study of private security to date. We introduce an administrative dataset covering nearly 300,000 licensed private security officers in the State of Florida. By linking this dataset to similarly comprehensive information about public law enforcement, we have, for the first time, a nearly complete picture of the entire security labor market in one state. We report two principal findings. First, the public and private security markets are predominantly characterized by occupational segregation, not integration. The individuals who compose the private security sector differ markedly from the public police; they are, for example, significantly less likely to be white men. We also find that few private officers, roughly 2%, have previously worked in public policing, and even fewer will go on to policing in the future. Second, while former police make up a small share of all private security, roughly a quarter of cops who do cross over have been fired from a policing job. In fact, fired police officers are nearly as likely to land in private security as to find another policing job, and a full quarter end up in one or the other. We explore the implications of these findings, including intersections with police abolition and the future of policing, at the paper’s close.
That is by Ben Grunwald, John Rappaport, and Michael Berg. Via the excellent Kevin Lewis.
Life as a professional bridesmaid (those new service sector jobs)
Ten years after posting that Craigslist ad, Glantz is 35 years old and shares her one-bedroom Williamsburg apartment with a husband, a dog, and a baby.
That means her stash of bridesmaids dresses gets split — she keeps 25 in a garbage bag in her closet, and another 25 at her in-laws’ house. The rest she’s donated or given to friends.
The business brings in more than $100k a year, and she has freelance bridesmaids who work for her when she can’t, or when a bride is concerned someone will recognize her as a bridesmaid for hire.
She also sells:
Maid of honor speeches, which cost $375 if they’re written by Glantz or $35 if she gets her AI assistant to help. “I was going into labor, and had someone who asked if I could do one in three days. I gave birth on a Tuesday and had the speech written by Friday morning,” she says.
Here is the full story, via the excellent Samir Varma.
The California tax burden is driving people out
That is the topic of my latest Bloomberg column, here is one bit:
California’s highest income tax rate is 13.3%. That is in addition to a top federal tax rate of 37%. California also has a state sales tax rate of 7.25%, and many localities impose a smaller sales tax. So if a wealthy person earns and spends labor income in the state of California, the tax rate at the margin could approach 60%. Then there is the corporate state income tax rate of 8.84%, some of which is passed along to consumers through higher prices. That increases the tax burden further yet.
And this:
Researchers Joshua Rauh and Ryan Shyu, currently and formerly at Stanford business school, have studied the behavioral response to Proposition 30, which boosted California’s marginal tax rates by up to 3% for high earners for seven years, from 2012 to 2018. They found that in 2013, an additional 0.8% of the top bracket of the residential tax base left the state. That is several times higher than the tax responses usually seen in the data.
These high-earning California residents seem to have reached a tipping point: Maybe many of them could afford the extra tax burden, but at some point they got fed up, read the signals and decided the broader system wasn’t working in their interest.
Overall, Proposition 30 increased total tax revenue for California — but not nearly as much as intended. Due to departures, the state lost more than 45% of its windfall tax revenues from the policy change, and within two years the state lost more than 60% of those same revenues.
Might a Georgist land tax help revive Detroit?
That is the topic of my Bloomberg column. Maybe they should try it for federalism/discovery purposes, but overall I am skeptical. Here is one excerpt:
The history of “enterprise zones,” which are specially designated areas (usually urban) with lower taxes and fewer regulations, offers a cautionary tale. Enterprise zones have at best mixed results in revitalizing declining areas. Could fiddling with the marginal incentives embedded in the property tax code really make that much more of a difference? Most economic decisions are made on the basis of broad criteria such as labor force quality, nearby markets and the ease of doing business.
By itself, the uneven record of enterprise zones is no reason not to experiment with land value taxation. But it does limit the upside from any change.
A possible downside from land value taxation is that it discourages land speculation. Land speculators do not, I concede, have the best reputation — but speculation can be either a positive or negative, depending on whether entrepreneurs have good foresight. On the plus side, speculation can keep land from being developed prematurely, or from being locked into uses that later turn out to be too low in value.
If dormant land in Detroit is taxed at a higher rate, that might encourage property owners to develop low-quality housing or retail to lower their tax burden. A landowner might build a small house, for example, rather than holding out for a large, higher-quality apartment complex. The city might get modest growth, but lose out on the chance for a bigger economic redevelopment. Detroit has in recent times shown signs of a revival, so perhaps waiting for the right opportunity is sometimes best.
Of course, speculators can also make mistakes, for example by failing to develop their property more quickly. Still, whether the tax authorities have the foresight and flexibility to do better than property speculators is an open question. In the meantime, some speculators may abandon their holdings to avoid the tax, putting more property in the hands of the municipal government — hardly an ideal outcome.
Note also that the proposal is revenue neutral by design (taxes on developments are supposed to go down), but over time it might simply evolve into a flat-out tax increase.
How much do male teachers matter?
This is all for Finland:
We evaluate equity-efficiency trade-offs from admissions quotas by examining effects on output once beneficiaries start producing in the relevant industry. In particular, we document the impact of abolishing a 40% quota for male primary school teachers on their pupils’ long-run outcomes. The quota had advantaged academically lower-scoring male university applicants, and its removal cut the share of men among new teachers by half. We combine this reform with the timing of union-mandated teacher retirements to isolate quasi-random variation in the local share of male quota teachers. Using comprehensive register data, we find that pupils exposed to a higher share of male quota teachers during primary school transition more smoothly to post-compulsory education and have higher educational attainment and labor force attachment at age 25. Pupils of both genders benefit similarly from exposure to male quota teachers. Evidence suggests that the quota improved the allocation of talent by mending imperfections in the unconstrained selection process.
That is from a recent paper by Ursina Schaede and Ville Mankki, via Thomas B.
Friday assorted links
1. Rasheed Griffith on reparations for the Caribbean.
2. Millions of new materials discovered by deep learning.
3. You can now pre-order Henry Oliver’s excellent
4. Chinese semi-clone of a GPT model. It’s not bad.
5. Remote collaboration fuses fewer breakthrough ideas.
6. You can pre-order Coleman Hughes, The End of Race Politics.
7. “Paraguay official resigns after signing agreement with fictional country.“
Legacy Admissions
I admire but do not necessarily approve of the genius at UVA admissions who slyly inserted legacies into the essay prompt, yet shrewdly combined it with race, slavery and history to make the package defensible.
If you have a personal or historic connection with UVA, and if you’d like to share how your experience of this connection has prepared you to contribute to the University, please share your thoughts here. Such relationships might include, but are not limited to, being a child of someone who graduated from or works for UVA, a descendant of ancestors who labored at UVA, or a participant in UVA programs.
Saturday assorted links
1. The Dean Karlan plan for fixing USAID.
2. David Salle tutors an AI in how to make art (NYT).
3. Jellyfish evidence that “thinking/learning” goes on at the cellular level (NYT).
5. Rust Belt fact of the day: “Labor conflict accounts for half of the decline in the region’s share of manufacturing employment. Foreign competition plays a smaller role, and its effects are concentrated after most of the region’s decline had already occurred.”
SpaceX Versus the Department of Justice
The DOJ is suing SpaceX for focusing its hiring on US citizens and permanent residents. Yes, you read that right.
Semafor: The DOJ alleges that SpaceX discouraged refugees and asylum seekers from applying to open positions and refused to hire those that did, according to the complaint.
According to the complaint, SpaceX job postings wrongly stated that only U.S. citizens and lawful permanent residents could apply for openings, and that “SpaceX’s hiring practices were routine, widespread, and longstanding, and harmed asylees and refugees.”
Under U.S. law, both asylum seekers and refugees are protected from hiring discrimination regardless of citizen status.
The lawsuit is bizarre. I am sure Elon would be happy to hire some refugees from the Russian space program. So why does SpaceX advertise that only US citizens and lawful permanent residents can apply for some jobs? Because that’s what they understand the law requires:
People “don’t understand the chilling effect of the federal export control laws” that SpaceX allegedly cited in its job listings as a reason for excluding refugees and asylees as candidates, writes Abhi Tripathi, the director of mission operations at UC Berkeley’s Space Sciences Laboratory. The International Traffic in Arms Regulations (ITAR) only allows U.S. citizens and green card holders to access information in companies that make spacecraft and rockets for national security reasons. “Employees are PERSONALLY liable with huge fines and imprisonment if the wrong info gets out,” Tripathi says. It’s unclear which positions SpaceX allegedly refused refugee and asylum applicants for.
Now SpaceX may be wrong about the technicalities of the law, the distinction, as I understand it, rests on the difference between US Persons and US Citizens, but they are 100% correct that the DoD frowns on non-citizens working for military related ventures. As a result, jobs restricted to US citizens are common in industries that interact with the military or that involve technologies which are potentially dual-use, such as jobs at SpaceX. Jobs that require security clearances are, of course, typically restricted to US citizens but so are many jobs not requiring clearances. Here, for example, is an ad for an engineer at Northrup Grumman in aerospace structures that does not require security clearance but advertises US Citizen only. The U.S. military, of course, mandates citizenship or a green card for enlistment, a policy that is shared by another federal employer—can you guess? Surprise. The Department of Justice.
Below, for example, is an ad for a recreational specialist to work for the DOJ’s Bureau of Prisons–this is not a job involving national security!–but the ad states clearly that U.S. Citizenship is Required. Most federal government jobs, in fact, are restricted to US citizens. The Federal Reserve even requires US citizenship to get an internship.
In short, it seems that SpaceX is being singled out for punishment for a practice that is widespread in the industry and often encouraged by, sometimes required by, and usually practiced by the Federal government.
