Working Paper: CEPR ID: DP6348
Authors: Ghazala Azmat; Alan Manning; John Van Reenen
Abstract: Labour's share of GDP in most OECD countries has declined over the last two decades. Some authors have suggested that these changes are linked to deregulation of product and labour markets. To examine this we focus on a large quasi-experiment in the OECD: the privatization of many network industries (e.g. telecommunications and utilities). We present a model with agency problems, imperfect product market competition and worker bargaining which makes clear predictions on how the labour share, employment and wages respond to privatization and other regulatory changes. We exploit cross-country panel data on several network industries and find that privatization can account for a significant proportion of the fall of labour's share (a fifth overall, but over half in Britain and France). The impact of privatization has been offset by falling barriers to entry, which consistent with theory, dampens profit margins.
Keywords: entry regulation; labour share; privatization; wages
JEL Codes: E22; E24; E25; J30; L32; L33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public ownership (L32) | labor's share of GDP (E25) |
| barriers to entry (D43) | labor's share of GDP (E25) |
| privatization (L33) | labor's share of GDP (E25) |
| entry barriers decrease (L11) | labor's share of GDP (E25) |