NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy

Anna Stansbury, Lawrence H. Summers

NBER Working Paper No. 27193
Issued in May 2020
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Industrial Organization, Labor Studies

Rising profitability and market valuations of US businesses, sluggish wage growth and a declining labor share of income, and reduced unemployment and inflation, have defined the macroeconomic environment of the last generation. This paper offers a unified explanation for these phenomena based on reduced worker power. Using individual, industry, and state-level data, we demonstrate that measures of reduced worker power are associated with lower wage levels, higher profit shares, and reductions in measures of the NAIRU. We argue that the declining worker power hypothesis is more compelling as an explanation for observed changes than increases in firms’ market power, both because it can simultaneously explain a falling labor share and a reduced NAIRU, and because it is more directly supported by the data.

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Document Object Identifier (DOI): 10.3386/w27193

 
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