Google and Facebook are among the “superstar” firms that some economists believe are driving a significant decline in U.S. workers’ income.
Income for laborers in the U.S. has been on the decline over the past few decades. Historically, U.S. labor typically earned about 66 percent of the national income, with capital taking in about one-third, according to Bloomberg. However, since 2000 capital has been taking more than its usual share, with workers taking in as little as 60 percent of the gross domestic product in 2013.
While economists agree that the decline in workers’ income contributes to economic inequality, they haven’t come to a consensus as to why this is happening. Some economists theorize that cuts on capital gains taxes have contributed to the problem, according to Quartz. Other experts blame the dip on China and globalization, which allows businesses to hire cheap labor overseas and keep more profits.
But according to a new paper from five economists, companies like Alphabet’s Google (NASDAQ: GOOG) and Facebook (NASDAQ: FB) are, in part, to blame for the growing wealth gap. “We hypothesize that industries are increasingly characterized by a ‘winner take most’ feature where one firm (or a small number of firms) can gain a very large share of the market,” according to authors David Autor, David Dorn, Lawrence Katz, Christina Patterson and John Van Reenen in the paper titled “Concentrating on the Fall of the Labor Share.”(PDF)
“Because these superstar firms are more profitable, they will have a smaller share of their labor in total sales or value added,” the authors continued. “Consequently, the aggregate share of labor falls as the weight of superstar firms in the economy grows.”