Working Paper: NBER ID: w27193
Authors: Anna Stansbury; Lawrence H. Summers
Abstract: Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher pr ofit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.
Keywords: worker power; labor share; corporate profitability; NAIRU; income inequality
JEL Codes: E02; E2; E25; J01; J3; J31; J42; J51; L12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Reduced worker power (J54) | Lower wage levels (J31) |
| Reduced worker power (J54) | Higher profit shares (D33) |
| Reduced worker power (J54) | Reductions in measures of the NAIRU (E24) |
| Reduced worker power (J54) | Redistribution of rents from labor to capital (D33) |
| Reduced worker power (J54) | Fall in labor income share (E25) |
| Reduced worker power (J54) | Increase in Tobin's Q (D25) |
| Reduced worker power (J54) | Increase in corporate profitability (G38) |
| Reduced worker power (J54) | Increase in measured markups (L11) |
| Reduced worker power (J54) | Fall in the NAIRU (E31) |