Market power and income distribution: lessons from hybrid industrial-labour economics
Market power and income distribution: lessons from hybrid industrial-labour economics
Over the past thirty years, the income gap between capital and labour has widened, a shift accompanied by an increase in dominant firms' market power. To understand the underlying causes, our study integrates imperfect competition in both product and labour markets, revealing how different labour market rent sharing mechanisms impact income distribution. We show that firms' gross profit margin serves as a consistent measure of overall market power and a crucial determinant of income inequity. We also develop a novel empirical method to estimate production function, markup and markdown powers, which we apply to a panel of UK manufacturing firms. Our findings demonstrate that the root cause of inequality in market power is the large disparity in firms' productivity, leading to both income inequity and inefficiency, not a trade-off between the two. Our research underscores the importance of addressing market power concentration to promote equitable and efficient economic growth.
firm heterogeneity, inequality, multifactor productivity, market powers, markup, markdown, oligopsony, rent sharing, income distribution, estimation of production function, identification method
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
6 February 2023
Tong, Jian
8109179b-ff1d-483e-9ee0-bf3f96cda71b
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
Tong, Jian and Ornaghi, Carmine
(2023)
Market power and income distribution: lessons from hybrid industrial-labour economics
(Discussion Papers in Economics and Econometrics, 2301)
66pp.
Record type:
Monograph
(Discussion Paper)
Abstract
Over the past thirty years, the income gap between capital and labour has widened, a shift accompanied by an increase in dominant firms' market power. To understand the underlying causes, our study integrates imperfect competition in both product and labour markets, revealing how different labour market rent sharing mechanisms impact income distribution. We show that firms' gross profit margin serves as a consistent measure of overall market power and a crucial determinant of income inequity. We also develop a novel empirical method to estimate production function, markup and markdown powers, which we apply to a panel of UK manufacturing firms. Our findings demonstrate that the root cause of inequality in market power is the large disparity in firms' productivity, leading to both income inequity and inefficiency, not a trade-off between the two. Our research underscores the importance of addressing market power concentration to promote equitable and efficient economic growth.
Text
2301_hybrid industrial-labour economics_revised
- Version of Record
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e-pub ahead of print date: 6 February 2023
Published date: 6 February 2023
Keywords:
firm heterogeneity, inequality, multifactor productivity, market powers, markup, markdown, oligopsony, rent sharing, income distribution, estimation of production function, identification method
Identifiers
Local EPrints ID: 475647
URI: http://eprints.soton.ac.uk/id/eprint/475647
ISSN: 0966-4246
PURE UUID: 909436d0-aa02-406e-b82e-d778d229638c
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Date deposited: 23 Mar 2023 17:40
Last modified: 17 Mar 2024 03:00
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