The labour market: wages and firms
Team Leaders: Chris Pissarides and David Autor
Superstar firms and inequality (Autor, Patterson and Van Reenen)
In the long-run productivity, growth is a necessary condition for sustainable wage growth. However, it may not be a sufficient condition. In many countries, such as the US, the share of labour in GDP has fallen so productivity growth has outstripped wage growth. POID researchers have shown that a reason for this is the growth of "superstar firms". These mega firms, such as the GAFAMs (Google, Amazon, Facebook, Apple and Microsoft) take up an increasing share of sales, driving up the level of concentration. They also tend to have higher profit markups and therefore lower labour shares of revenue and value added. As the weight of the economy reallocated towards such firms, the share of labour tends to fall.
Although the UK labour share has not fallen as much as in the US, inequality has risen tremendously over the last four decades. Mean wages have outstripped median wage growth for example.
Mean and median UK Wages since 1980s
What is the connection between growing product market concentration and workers' labour market position? There has been much progress in thinking about imperfect competition in the labour market, much pioneered at the CEP (e.g. Nobel Laureate Pissarides' work on matching; Manning's work on monopsony; Van Reenen's work on rent-sharing). Can we use these tools to understand the links between labour and product markets and what can be done to distribute the fruits of growth more equitably?
These projects will use individual and firm level panel data to track the impact of changes in product and labour market power on wages. We can use new types of data on online vacancies to more accurately map out the contours of labour market power.
Labour regulation and Innovation (Aghion, Bergeaud and Van Reenen)
Another way to try and share more of the benefits of growth with workers is through tougher labour standards. Traditionally this would be the role of trade unions, but these institutions have been in long-term decline, so the move in the UK and elsewhere has been towards more direct intervention, such as with minimum wages.
We will assess the benefits of different forms of regulations, but we should also have an eye to the costs. Mostly people focus on the static costs of red tape, but the larger impact might be through the dynamic effects of lower innovation. For example, if SMEs are exempt from some regulations, this may discourage them from growing. We will investigate this by setting out an endogenous growth framework for assessing regulation, then implementing this on micro-data.
Vox video: "Regulation and innovation" (with Philippe Aghion and Antoine Bergeaud).