This paper examines trends in worker bargaining power in the United States and France. I find that bargaining power has shifted in favor of firms over the last decades, with a consistent trend observed in both countries. These patterns help explain recent dynamics of unemployment and wage growth uncovering that firms leveraged their negotiation position to hire an inefficiently high number of employees. I propose marginal wage and profit taxes to restore labor market efficiency. Factors such as technological evolution, regulatory measures, trade, and outsourcing appear to exert minimal impact on bargaining power reduction. However, gender and occupation disparities are pivotal, with male and non-routine workers experiencing the most pronounced reduction in bargaining power.
We propose a method that generates unbiased and consistent markup estimates using only revenue data. Building on standard production function estimators, our method requires flexibly modeling markups as a specified function of observables and fixed effects and modifying physical productivity process assumptions into revenue productivity process assumptions. We show that it solves the omitted price bias without imposing additional assumptions on the demand side or the competition structure. Our suggested two-step estimator is simple in concept and implementation, requiring only common regression techniques and information available in most data settings.
Recent evidence on the rise in markups has attracted considerable attention on potential causes and explanations. In a decomposition exercise, De Loecker, Eeckhout, and Unger (2020) find that a large portion of the economy-wide increase in aggregate markups is due to the reallocation term: larger growth of the higher markup firms relative to the average. We revisit this finding and evaluate how much of the firm size increase is due to internal growth and how much is due to acquiring other companies through mergers and acquisitions. Utilizing a comprehensive dataset of M\&A activity over the last 40 years, we find that 60 percent of the reallocation term and 38 percent of the overall markup increase is due to merger activities. The merger and acquisition effect on markups grows considerably after 1999, coinciding with aggregate patterns of M&A activities. Manufacturing and information industries account for a large portion of the aggregate pattern. We further find that merger activities also impact acquirer markups.
Bargaining Power and Labor Force Participation
What is driving the decline in labor force participation in the United States over the past six decades? This paper investigates the role of worker bargaining power in this phenomenon. Motivated by a strong correlation in their trends, I leverage the staggered introduction of right-to-work laws across states to identify a causal link between lower worker bargaining power and a decline in labor force participation. Specifically, I construct a time series of worker bargaining power at the state level and find that lower worker bargaining power is associated with a decrease in labor force participation. To better understand the mechanisms at play, I develop a model with endogenous participation choices and show that worker bargaining power can account for a significant share of the decline in labor force participation rate, employment, and labor share in recent years. These findings suggest that policies aimed to strengthen worker bargaining power could help boost labor force participation in the United States.
Selected Work in Progress
Markups: Theory Does Not Meet Data