The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy

By Anna Stansbury, Lawrence H. Summers. Brookings Papers on Economic Activity, 2020

205 citations recorded by the source corpus.

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 profit shares, and reductions in measures of the non-accelerating inflation rate of unemployment (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.

Subfields: Economics and Econometrics, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/5a1906684957860ca818f24cdcdf3d9d8308501a

Citations in the corpus

• The Elusive Explanation for the Declining Labor Share (2021, unknown): “Syverson (2004) provides evidence for such selection e¤ects that simultaneously enhance competition and result in greater concentration of sales.”