Article by John Van Reenen and Christina Patterson

In most countries, labor’s share of the national income has declined for about three decades. Why? Maybe the cause is “Robocalypse Now”—firms replacing expensive people with cheaper machines. Or maybe Chinese imports have caused employers to outsource employment. However, China itself is experiencing a labor share decline. We suggest another factor: the rise of superstar firms. Over the last 40 years, more industries have become “winner take most”. Firms with a cost or quality advantage have always enjoyed higher market shares. But the new behemoths of our age capture a much larger fraction—if not all—of their markets. Think Amazon.com, Apple and Google, or Goldman Sachs and Wal-Mart. These superstar firms make lots of profit per employee, so as they become a bigger part of the economy, labor’s share of gross domestic product declines.

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