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

139 Pages Posted: 26 May 2020

See all articles by Anna Stansbury

Anna Stansbury

Harvard University, Department of Economics

Larry Summers

Harvard University

Date Written: May 2020

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 pr ofit shares, and reductions in measures of the 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.

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Suggested Citation

Stansbury, Anna and Summers, Larry, The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy (May 2020). NBER Working Paper No. w27193, Available at SSRN: https://ssrn.com/abstract=3609645

Anna Stansbury (Contact Author)

Harvard University, Department of Economics ( email )

Cambridge, MA 02138

HOME PAGE: http://scholar.harvard.edu/stansbury

Larry Summers

Harvard University ( email )

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