Firms and inequality

Abstract

We review the existing literature on falling business dynamism and present a new analysis using comprehensive UK firm-level panel data. Since the mid-1990s, there has been a large increase in UK firm-level inequality (especially in the upper tails) of productivity, wages, markups and labour shares, similarly to the USA. We suggest a simple theoretical framework for understanding some of these trends and quantitatively analyse why, despite increasing markups, the UK labour share has not fallen as sharply as that in the USA. Finally, we suggest some policy options in response to these worrying trends, including modernizing competition rules to deal with the growth of superstar firms and strengthening worker bargaining power.