Privatization and the Decline of Labour's Share: International Evidence from Network Industries

Abstract

Some authors have suggested that deregulation of product and labour markets is responsible for the decline in Labour's share of GDP. A simple model predicts that privatization is associated with a lower labour share, due to job shedding. We test this hypothesis by focusing on privatization of network industries in the OECD. We find that, on average, privatization accounts for a fifth of the fall of Labour's share, and over half in Britain and France. This is due to lower employment, but it is partially offset by higher wages and falling barriers to entry, which dampen profit margins. © 2012 The London School of Economics and Political Science.