I study the effect of labor market imperfections on the labor share in a tractable model that emphasizes the interaction between productivity dispersion and firm competition for workers. I calibrate ...the model using administrative data covering the universe of firms in Canada from 2000 to 2015. As in the data, most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, highly productive firms. I find that a rise in the dispersion of firm productivity causes the aggregate labor share to decline in favor of firm profits. The mechanism is that productivity dispersion effectively shields high‐productivity firms from wage competition. Regression evidence from cross‐country and cross‐industry data supports both the model prediction and mechanism.
Wealth Inequality in a Low Rate Environment Gomez, Matthieu; Gouin‐Bonenfant, Émilien
Econometrica,
January 2024, 2024-00-00, 20240101, Letnik:
92, Številka:
1
Journal Article
Recenzirano
Odprti dostop
We study the effect of interest rates on wealth inequality. While lower rates decrease the growth rate of rentiers, they also increase the growth rate of entrepreneurs by making it cheaper to raise ...capital. To understand which effect dominates, we derive a sufficient statistic for the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the lifetime equity and debt issuance rate of individuals in the right tail of the wealth distribution. We estimate this sufficient statistic using new data on the trajectory of top fortunes in the U.S. Overall, we find that the secular decline in interest rates (or more generally of required rates of returns) can account for about 40% of the rise in Pareto inequality; that is, the degree to which the super rich pulled ahead relative to the rich.
This paper studies the evolution of individual earnings inequality and dynamics in Canada from 1983 to 2016 using tax files and administrative records. Linking individual tax filers to their ...employers (and rich administrative records on firms) beginning in 2001, it also documents the relationship between the earnings dynamics of workers and the size and growth of their employers. It highlights three main patterns over this period: First, with a few exceptions (sharp increase in top 1% and declining gender gap), Canada has experienced relatively modest changes in overall earnings inequality, volatility, and mobility between 1983 and 2016. Second, earnings inequality and the distribution of earnings growth vary substantially over the business cycle. Third, the earnings dynamics of individuals are strongly related to the size and employment growth of their employers.
We develop an analytical framework designed to solve and analyze heterogeneous-agent models that endogenously generate fat-tailed wealth distributions. We exploit the asymptotic linearity of policy ...functions and the analytical characterization of the Pareto exponent to augment the conventional solution algorithm with a theory of the tail. Our framework allows for a precise understanding of the very top of the wealth distribution (e.g., analytical expressions for top wealth shares, type distribution in the tail, and transition probabilities in and out of the tail) in addition to delivering improved accuracy and speed.
In the first chapter, I propose a tractable model of the labor share that emphasizes the interaction between labor market imperfections and productivity dispersion. I bring the model to the data ...using an administrative dataset covering the universe of firms in Canada. As in the data, most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, extremely productive “superstar firms”. I find that a rise in the dispersion of productivity across firms leads to a decline of the aggregate labor share in favor of firm profit. The mechanism is that productivity dispersion effectively shields high-productivity firms from wage competition. Reduced-form evidence from cross-country and cross-industry data supports both the prediction and the mechanism. Through the lens of the model, rising productivity dispersion has caused the U.S. labor share to decline starting around 1990.In the second chapter, we propose a new, systematic approach for analyzing and solving heterogeneous-agent models with fat-tailed wealth distributions. Our approach exploits the asymptotic linearity of policy functions and the analytical characterization of the Pareto exponent to make the solution algorithm more transparent, efficient, and accurate with zero additional computational cost. As an application, we solve a heterogeneous-agent model that features persistent earnings and investment risk, borrowing constraint, portfolio decision, and endogenous Pareto-tailed wealth distribution. We find that a wealth tax is a ”lose-lose” policy: the introduction of a 1% wealth tax (with extra tax revenue used as consumption rebate) decreases wage by 6.5%, welfare (in consumption equivalent) by 7.7%, and total tax revenue by 0.72%. In the third chapter, I propose a model of earnings dynamics and inequality within the firm. The model combines a production hierarchy with a “rank order tournament” promotion scheme. I motivate the theory by documenting three sets of facts using proprietary personnel data. First, most of inequality within the firm is between hierarchy levels rather than within. Second, there is on average very little upward mobility within the firm. Third, there is important heterogeneity in earnings trajectories. The model provides a positive theory of these facts and sheds light on the determinants of inequality within the firm.
This paper studies the evolution of individual earnings inequality and dynamics in Canada from 1983 to 2016 using tax files and administrative records. Linking these individuals to their employers ...(and rich administrative records on firms) beginning in 2001, it also documents the relationship between the earnings dynamics of workers and the size and growth of their employers. It highlights three main patterns over this period: First, with a few exceptions (sharp increase in top 1% and declining gender gap), Canada has experienced relatively modest changes in overall earnings inequality, volatility, and mobility between 1983 and 2016. Second, there is considerable variability in earnings inequality and volatility over the business cycle. Third, the earnings dynamics of individuals are strongly related to the size and employment growth of their employers.
This paper studies the evolution of individual earnings inequality and dynamics in Canada from 1983 to 2016 using tax files and administrative records. Linking these individuals to their employers ...(and rich administrative records on firms) beginning in 2001, it also documents the relationship between the earnings dynamics of workers and the size and growth of their employers. It highlights three main patterns over this period: First, with a few exceptions (sharp increase in top 1% and declining gender gap), Canada has experienced relatively modest changes in overall earnings inequality, volatility, and mobility between 1983 and 2016. Second, there is considerable variability in earnings inequality and volatility over the business cycle. Third, the earnings dynamics of individuals are strongly related to the size and employment growth of their employers.
In this paper, I study how the pass-through of productivity to wages depends on the distribution of productivity across firms. Using administrative data covering the universe of Canadian ...corporations, I document high concentration of value added within highly productive, low-labor-share firms. Importantly, these large firms do not have a higher capital-output ratio and achieve a low labor share despite paying above average salaries. To interpret these findings, I develop a tractable firm dynamics model (a la Hopenhayn 1992) with search frictions and wage posting in the labor market (a la Burdett and Mortensen 1998). In the model, more productive firms offer higher wages in order to increase their market share by poaching workers from lower paying firms. As in the data, most firms have a high labor share, routinely above one, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, extremely productive ``superstar firms''. The model predicts that the pass-through of aggregate labor productivity to average wages is lower when productivity dispersion across firm is high, meaning that all else equal, an increase in productivity dispersion decreases the aggregate labor share. The mechanism is that an increase in the productivity differential between high and low productivity firms increases profit margins at high productivity firms, who become effectively shielded from wage competition. I test the model's prediction and mechanism using cross-country data and find support, thus suggesting that the measured rise in productivity dispersion has contributed to the decline of the global labor share.
Canada has continued to lose market share in the United States since the Great Recession, beyond what our bilateral competitiveness measures (relative unit labour costs) would suggest. In this ...context, we have studied 31 non?energy export categories to assess their individual performance against a category-specific foreign activity measure or benchmark, and to identify which export subaggregates will likely be supported by the recent depreciation of the Canadian dollar. Our main findings are: (i) among the 31 subsectors of non-energy exports, about half (in value terms) have either been performing as expected or outperforming their benchmarks; (ii) the remaining subsectors have lagged their benchmarks, mainly owing to longer-term structural declines; (iii) around half of the subsectors appear to be quite sensitive to persistent movements in the exchange rate; and (iv) about half of the non-energy export subaggregates are anticipated to lead the recovery, including those likely to benefit from robust growth in U.S. construction, U.S. investment in machinery and equipment, and/or the recent depreciation of the Canadian dollar.
PDF