TY - JOUR AU - Autor, David AU - Dorn, David AU - Katz, Lawrence F AU - Patterson, Christina AU - Van Reenen, John TI - The Fall of the Labor Share and the Rise of Superstar Firms JF - National Bureau of Economic Research Working Paper Series VL - No. 23396 PY - 2017 Y2 - May 2017 DO - 10.3386/w23396 UR - http://www.nber.org/papers/w23396 L1 - http://www.nber.org/papers/w23396.pdf N1 - Author contact info: David Autor Department of Economics, E52-438 Massachusetts Institute of Technology 77 Massachusetts Avenue Cambridge, MA 02139 Tel: 617/258-7698 Fax: 617/253-1330 E-Mail: dautor@mit.edu David Dorn University of Zurich Department of Economics Schoenberggasse 1 CH-8001 Zurich - Switzerland Tel: +34 914290551 Fax: +34 914291056 E-Mail: david.dorn@econ.uzh.ch Lawrence F. Katz Department of Economics Harvard University Cambridge, MA 02138 Tel: 617/495-5148 Fax: 617/613-1245 E-Mail: lkatz@harvard.edu Christina Patterson Booth School of Business University of Chicago 5807 S. Woodlawn Avenue Chicago, IL 60637 E-Mail: christina.patterson@chicagobooth.edu John Van Reenen Department of Economics London School of Economics Houghton Street London, WC2A 2AE United Kingdom E-Mail: j.vanreenen@lse.ac.uk M2 - featured in NBER digest on 2017-07-27 AB - The fall of labor's share of GDP in the United States and many other countries in recent decades is well documented but its causes remain uncertain. Existing empirical assessments of trends in labor's share typically have relied on industry or macro data, obscuring heterogeneity among firms. In this paper, we analyze micro panel data from the U.S. Economic Census since 1982 and international sources and document empirical patterns to assess a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profits and a low share of labor in firm value-added and sales. As the importance of superstar firms increases, the aggregate labor share will tend to fall. Our hypothesis offers several testable predictions: industry sales will increasingly concentrate in a small number of firms; industries where concentration rises most will have the largest declines in the labor share; the fall in the labor share will be driven largely by between-firm reallocation rather than (primarily) a fall in the unweighted mean labor share within firms; the between-firm reallocation component of the fall in the labor share will be greatest in the sectors with the largest increases in market concentration; and finally, such patterns will be observed not only in U.S. firms, but also internationally. We find support for all of these predictions. ER -