Labor and Product Market Concentration, Average Wages and Labor Shares(1/2)

Project Details


The notion that competition promotes efficient allocation of resources is fundamental in economic theories. In the late 20th century, this concept has motivated governments around the world to implement a series of policy reforms, including tariff reductions, deregulations, and aggressive antitrust enforcement (Grullon et al., 2018). All these measures contributed to the increased competition. The potential effects of employer concentration may exist not only in the product market but also in the labor market. Antitrust regulators are concerned about the lack of competition on product prices and the consequences of adverse effect on consumer welfare, but pay little attention to firms’ buyer-side power in the labor market (Azar et al., 2017). Since empirical evidence on this subject is quite scant, this project is interested in understanding the role of local-level monopsony power in influencing firm wage-setting decision (Benmelech et al., 2018). In the past two decades, the fall of labor shares of GDP in Taiwan and many other developed countries has well documented but the causes remain uncertain. Potential explanations include the substitution between capital and labor, information technology, import exposure and globalization. As the focus of studies is different, mixed results are obtained. Most of existing empirical literature use the macro or industry data for analysis, obscuring heterogeneity among firms. A recent study by Autor et al. (2017) proposes that the superstar firms model describes the link between the rise of superstar firms and the fall in labor share. As superstar firms tend to be more efficient and large corporations, they capture a higher share of industry output and are also more likely to have lower labor shares. Based on the micro panel data from U.S. Census, the authors provide suggestive support for the model’s predictions: industries with concentration rises most have the largest declines in the labor share; and the fall in the labor share is mainly driven by between-firm reallocation component rather than a fall in the mean labor share within firms. The purposes of this study are twofold. First, by constructing the HHI of firm employment at the county-industry-year level, we investigate whether wages are significantly lower in local labor markets in which employers are more concentrated. Underlying mechanisms and the influence of labor market power on firm financial flexibility and profitability would also be explored. Second, we examine the determinants of industry and firm labor shares. The relative importance of between-firm and within-firm components will be evaluated based on the decomposition analysis. To test the prediction of superstar firms model, the between-firm component of the fall in the labor share is expected to associate with rising concentration. Factors which may affect the labor shares, such as technological progress, globalization and intangible asset, will also be investigated.
Effective start/end date1/08/1931/07/20

UN Sustainable Development Goals

In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):

  • SDG 8 - Decent Work and Economic Growth
  • SDG 11 - Sustainable Cities and Communities
  • SDG 17 - Partnerships for the Goals


  • labor market concentration
  • product market concentration
  • HHI
  • average wages
  • labor shares


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