Investment, Rates and Rents
Sunday, Jan. 7, 2018 1:00 PM - 3:00 PM
- Chair: Janice Eberly, Northwestern University
Intangibles, Investment and Efficiency
AbstractRecent work on US macroeconomic trends has emphasized slowing capital investment, but strong business profits and valuations. The retail sector is a microcosm of these trends, and accounts for a large share of the increase in aggregate business concentration also observed over this time period. Moreover, retail has implemented a series of technology-driven changes in business practice, such as inventory management and distribution of goods, that are manifested in rising intangible investment, which is also evident in the macro data. Focusing on the retail sector, we show that the weak investment and rising concentration are associated with rising productivity. Stronger productivity is correlated with increasing investment in intangible capital, both over time and across sub-industries. These comovements suggest that weaker capital investment and increasing industry concentration may arise from technological change that favors intangible, rather than physical, capital.
The Fall of the Labor Share and the Rise of Superstar Firms
AbstractThe fall of labor's share of GDP in the United States and many other countries in recent decades is well documented, but its causes remain uncertain. Existing empirical assessments of trends in labor's share typically have relied on industry or macro data. In this paper, we analyze firm and establishment panel data from the US Economic Census since 1982 and international sources documenting empirical patterns supportive of a new interpretation of the fall in the labor share based on the rise of “superstar firms.” If globalization or technological changes advantage the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms with high profit margins and a low share of labor in firm value added and sales. As the importance of superstar firms increases, the aggregate labor share will fall. Our hypothesis concerning the rise of superstar firms has several predictions: industry sales will be increasingly concentrated in a small number of firms; industries where concentration rises the most will have the largest declines in the labor share; the fall in the labor share should be driven largely by a between firm (reallocation) component rather than being primarily a fall in the unweighted mean labor share within firms; the between firm reallocation component of the fall in the labor share should be greatest in the sectors with the largest increases in market concentration; and finally, such patterns should be observed not only in US firms, but also internationally. We find support for all of these predictions.
Declining Competition and Investment in the United States
AbstractWe argue that the increasing concentration of US industries is not an efficient response to changes in technology and reflects instead decreasing domestic competition. Concentration has risen in the U.S. but not in Europe; concentration and productivity are negatively related; and industry leaders cut investment when concentration increases. We then establish the causal impact of competition on investment using Chinese competition in manufacturing, noisy entry in the late 1990s, and discrete jumps in concentration following large M&As. We find that more (less) competition causes more (less) investment, particularly in intangible assets and by industry leaders.
University of Pennsylvania
University of Maryland
Hugo A. Hopenhayn,
University of California-Los Angeles
Peterson Institute for International Economics
- D2 - Production and Organizations
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy