Working Paper: NBER ID: w22651
Authors: Barney Hartman-Glaser; Hanno Lustig; Mindy Z. Xiaolan
Abstract: Although the aggregate capital share of U.S. firms has increased, the firm-level capital share of a typical U.S. firm has decreased. This divergence is due to mega-firms that now produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm-specific shocks, where more productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays exit and increases the measure of mega-firms, which raises the aggregate capital share while lowering the average firm's capital share. An increase in the level of rents quantitatively magnifies this effect. We present evidence supporting this mechanism.
Keywords: capital share; firm dynamics; labor compensation; economic rents; idiosyncratic risk
JEL Codes: E25; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increases in firm-specific volatility (D25) | higher aggregate capital share (D33) |
| increases in firm-specific volatility (D25) | lower average capital share (D33) |
| exit of less productive firms (L19) | higher capital share among surviving firms (D33) |
| increases in economic rents (D33) | amplifies effect of idiosyncratic volatility on capital shares (D33) |
| increases in industry-level volatility (L16) | decreases in average capital income-to-sales ratio (E25) |