CeMPA WP 09/23 - Firm Heterogeneity and the Aggregate Labour Share

Bental and Demougin, 2010; Weil, 2017), the increase in the cost of housing and the related increase in the value of capital and in real estate profits (e.g. [...] The fall in the aggregate labour share observed over the period is therefore attributable by and large to changes in the characteristics of the average firm: in particular, to an increased pay-productivity gap, and to a lesser extent to increased market power. [...] Notice the decomposition formula is purely descriptive of the optimal production plans of the different firms, reflecting the partial equilibrium nature of the model. [...] We find no trend in this variable (results not shown), suggesting that most of the change in the aggregate labour share is due to the fall in the level of the labour share across the firm size spectrum. [...] Figure 6 presents the evolution of the different components of ∑.37 What this figure shows is that the bulk of the effect of firm heterogeneity on the aggregate labour share is due to two elements, namely TFP and labour market power.