Public enterprise and the rise and fall of labor share.

Developed economies experienced a rise and fall in labor share (LS) in the postwar period. We present a novel explanation of these trends – public enterprise employment. We document a link between it and both LS and wage compression in 15 developed nations. We then build a model that shows how overs...

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Bibliographic Details
Published in:	Economic Inquiry Vol. 60; no. 1; pp. 320 - 351
Main Authors:	Bridgman, Benjamin, Greenaway‐McGrevy, Ryan
Format:	Article
Published:	Wiley-Blackwell Jan2022
Subjects:	Government business enterprises Income inequality Private sector Stock prices Developed countries
Online Access:	View this record in EBSCOhost

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Summary:	Developed economies experienced a rise and fall in labor share (LS) in the postwar period. We present a novel explanation of these trends – public enterprise employment. We document a link between it and both LS and wage compression in 15 developed nations. We then build a model that shows how overstaffing public enterprises can increase LS and reduce wage inequality. Overstaffing directly increases public enterprise LS and indirectly increases private sector LS by reducing available labor. We examine several public enterprise reforms. Consistent with the model's predictions, reforms reduce public enterprise LS permanently and private sector LS temporarily.