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LABOR'S SHARE, THE FIRM'S MARKET POWER, AND TOTAL FACTOR PRODUCTIVITY
Author(s) -
Dixon Robert,
Lim Guay C.
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12580
Subject(s) - economics , elasticity (physics) , market power , factor shares , proxy (statistics) , total factor productivity , labour economics , factor market , econometrics , wage share , productivity , microeconomics , efficiency wage , macroeconomics , wage , production (economics) , materials science , machine learning , computer science , composite material , monopoly
We investigate the relationship between labor's share, firm's market power, and the elasticity of output with respect to labor input using an approach based on an unobserved components model. The approach yields time‐varying estimates of market power and the elasticity. Evidence on the market power of firms (which we find to be rising since 2000) gives a deeper understanding of movements in labor's share and the labor wedge. The generated values of the elasticity yield revised estimates of total factor productivity growth which is informative about the extent of the downward bias inherent in traditional estimates which use labor's share as a proxy for the elasticity. ( JEL O47, C32, E25)