Monopoly Myths: Is Concentration Eroding Labor’s Share of National Income?

Monopoly Myths: Is Concentration Eroding Labor’s Share of National Income? Joe Kennedy. ITIF, October 13, 2020. https://itif.org/publications/2020/10/13/monopoly-myths-concentration-eroding-labors-share-national-income

Pundits and activists have looked at the reduced share of U.S. national income going to workers and have simply asserted that the cause is increased market concentration. This assessment is misplaced.

KEY TAKEAWAYS

*  Despite the persistent claims that increased market power has hurt workers, the scholarly evidence is weak, while the macroeconomic data is strong and clear in showing that this is not the principal cause.

*  Labor’s share of income has declined slightly over the past two decades, but not principally because capital’s share of income has increased.

*  Most of the decline is offset by an increase in rental income—what renters pay and what the imputed rent homeowners pay for their house. This increase is due to restricted housing markets, not growing employer power in product or labor markets.

*  Antitrust policy is not causing the drop in labor share, so changing it is not the solution. For issues such as employer collusion over wages or excessive use of noncompete agreements, antitrust authorities already have power to act.

*  Stringent antitrust policy would do little to raise the labor share of income, but it could very well reduce investment and productivity growth. The better way to help workers is with pro-growth, pro-innovation policies that boost productivity.