Few things are stable in economic life. Sixty years ago, Nicholas Kaldor laid down one seemingly immutable fact: The share of the national income taken by labor was constant. In other words, every year workers took home around two-thirds of the economic pie, and the owners of capital took the rest. The stability of this ratio was, as his fellow Cambridge economist Lord Keynes said, “something of a miracle.”
Research: The Rise of Superstar Firms Has Been Better for Investors than for Employees
The share of income going to labor is falling across the world.
May 11, 2017
Summary.
In America, the share of the economic pie going to workers has been on the decline for about three decades, and this has accelerated since the turn of the century. The fall has occurred in most other countries, too. In the U.S., the share of income workers take home each year now hovers around 60%. The leading theories to explain this trend — automation and competition from China — are inadequate. A recent paper puts forward a different story based on the rise of “superstar firms”. More and more industries have become “winner take most” over the last 40 years. The rise of the superstar firm isn’t simply a reflection of a rigged economy where the incumbents are colluding to rip off consumers and workers. But the risk is that the dominance of superstars will eventually contribute to a fall in economic dynamism and productivity that will further entrench their power. Left unattended, this may stoke popular resentment of big business or big government, or both.