Privatization, Entry Regulation and the Decline of Labour's Share of GDP: A Cross-Country Analysis of the Network Industries

58 Pages Posted: 29 May 2008

See all articles by Ghazala Azmat

Ghazala Azmat

Sciences Po

Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP)

John Van Reenen

London School of Economics - Centre for Economic Performance (CEP); Stanford Graduate School of Business; Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)

Date Written: June 2007

Abstract

Labour's share of GDP in most OECD countries has declined over the last two decades. Some authors have suggested that these changes are linked to deregulation of product and labour markets. To examine this we focus on a large quasi-experiment in the OECD: the privatization of many network industries (e.g. telecommunications and utilities). We present a model with agency problems, imperfect product market competition and worker bargaining which makes clear predictions on how the labour share, employment and wages respond to privatization and other regulatory changes. We exploit cross-country panel data on several network industries and find that privatization can account for a significant proportion of the fall of labour's share (a fifth overall, but over half in Britain and France). The impact of privatization has been offset by falling barriers to entry, which consistent with theory, dampens profit margins.

Keywords: Entry Regulation, Labour share, Privatization, Wages

JEL Classification: E22, E24, E25, J30, L32, L33

Suggested Citation

Azmat, Ghazala and Manning, Alan and Van Reenen, John Michael and Van Reenen, John Michael, Privatization, Entry Regulation and the Decline of Labour's Share of GDP: A Cross-Country Analysis of the Network Industries (June 2007). CEPR Discussion Paper No. DP6348, Available at SSRN: https://ssrn.com/abstract=1136674

Ghazala Azmat (Contact Author)

Sciences Po ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

Alan Manning

London School of Economics & Political Science (LSE) - Centre for Economic Performance (CEP) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
(44 20) 7955 6078 (Phone)

John Michael Van Reenen

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

London School of Economics - Centre for Economic Performance (CEP) ( email )

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London WC2A 2AE
United Kingdom
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Institute for Fiscal Studies (IFS) ( email )

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+44 20 7240 6740 (Phone)
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

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