Public Enterprise and the Rise and Fall of Labor Share

58 Pages Posted: 25 Apr 2019 Last revised: 12 May 2019

See all articles by Benjamin Bridgman

Benjamin Bridgman

Government of the United States of America - Bureau of Economic Analysis (BEA)

Ryan Greenaway-McGrevy

University of Auckland Business School

Date Written: May 3, 2019

Abstract

Over the past seventy years developed economies have experienced a rise and a fall in labor share. We present a novel explanation to explain these observed trends -- public enterprise employment. First, we document an empirical link between labor share and public enterprise employment in a sample of fifteen developed nations in the post-war period. We then build a model that shows how public enterprise employment can increase labor share. It increases public enterprise labor share directly by overstaffing, which indirectly increases private sector labor share by reducing available labor. Finally, we show that the model's predictions are consistent with several reforms in which public enterprises were rapidly corporatized. The model successfully describes trends in labor share and inequality. Labor share immediately declines before recovering slightly and there is a one-off and permanent increase in wage inequality.

Keywords: Labor Share, Inequality, Economic Reform, State Owned Enterprises

JEL Classification: D33, L3, N17, O15

Suggested Citation

Bridgman, Benjamin and Greenaway-McGrevy, Ryan, Public Enterprise and the Rise and Fall of Labor Share (May 3, 2019). Available at SSRN: https://ssrn.com/abstract=3360687 or http://dx.doi.org/10.2139/ssrn.3360687

Benjamin Bridgman

Government of the United States of America - Bureau of Economic Analysis (BEA) ( email )

1441 L Street NW
Washington, DC 20910
United States

Ryan Greenaway-McGrevy (Contact Author)

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

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