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Labor income share and imperfectly competitive product market

  • Hyein Shim , Chune Young Chung and Doojin Ryu EMAIL logo
Published/Copyright: September 15, 2017
The B.E. Journal of Macroeconomics
From the journal The B.E. Journal of Macroeconomics Volume 18 Issue 1

Abstract

This study examines the long-run determinants of the income distribution between capital and labor in the Korean market, a leading emerging market. We develop a model of a special type of oligopolistic market, controlled by a group of dominant firms, and a general oligopolistic market, with heterogeneously sized firms. This model provides empirically testable implications related to the long-run determinants of the income distribution. Using two measures of the degree of market concentration, the k-firm concentration ratio (CRk) and the Hirschman–Herfindahl index (HHI), we find a negative association between these concentration measures (CRk and HHI) and the labor income share. In addition, analyzing a unique dataset of manufacturing firms based on five- and three-digit Korean Standard Industry Classifications from 2000 to 2011, we find a significantly negative relationship between the labor income share and the market concentration, which is consistent with the implications of the model. Overall, our results suggest that building a more competitive product market environment could alleviate national income inequality.

Keywords: imperfect competition; income distribution; labor income share; market concentration
JEL Classification: D33; E25

Acknowledgement

The authors are grateful for the valuable comments and suggestions of Tiago Cavalcanti, Kooksin Ahn, Baegeun Kim, and Heejin Yang. This study extends the doctoral dissertation of Hyein Shim. All authors contributed equally to this work. This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2016S1A5B5A02025566).

Appendix

 

Fixed-effects analyses for various dependent variables: three-digit manufacturing industry codes.

Dependent variable: ln(Y)Dependent variable: ln(WL)Dependent variable: ln(L)
Excluding macro-factorsIncluding macro-factorsExcluding macro-factorsIncluding macro-factorsExcluding macro-factorsIncluding macro-factors
CR3HHICR3HHICR3HHICR3HHICR3HHICR3HHI
ln(CR3)−0.052−0.082*−0.056−0.097***−0.156−0.144***
(0.043)(0.042)(0.039)(0.036)(0.031)(0.031)
ln(HHI)−0.119***−0.151***−0.140***−0.191***−0.240***−0.229***
(0.043)(0.042)(0.038)(0.036)(0.029)(0.030)
ln(CER)0.157***0.152***0.094**0.086**0.0200.014−0.054*−0.067**−0.105−0.119−0.087***−0.102***
(0.036)(0.036)(0.037)(0.037)(0.033)(0.032)(0.032)(0.031)(0.026)(0.025)(0.027)(0.026)
ln(EXR)0.038***0.038***0.033***0.033***0.035***0.035***0.028***0.028***0.005***0.006***0.0060.007
(0.008)(0.008)(0.008)(0.008)(0.007)(0.007)(0.007)(0.007)(0.006)(0.005)(0.006)(0.006)
ln(ASR)−0.153***−0.152***−0.121***−0.118***−0.091***−0.091***−0.054**−0.051**−0.021***−0.016***−0.029−0.024
(0.028)(0.028)(0.028)(0.028)(0.025)(0.025)(0.024)(0.023)(0.020)(0.019)(0.020)(0.020)
IR−0.066***−0.067***−0.079***−0.082***0.018**0.017**
(0.011)(0.0112)(0.010)(0.010)(0.008)(0.008)
ln(FER)−0.116−0.159−0.314***−0.381***0.163*0.088
(0.120)(0.122)(0.104)(0.104)(0.840)(0.876)
Constant11.021***11.751***13.573***14.800***12.417***13.303***16.720***18.422***12.204***13.595***0.088***0.087***
(0.728)(0.783)(1.146)(1.226)(0.654)(0.701)(0.991)(1.047)(0.519)(0.542)(10.563)(12.468)
R20.96920.96950.97140.97180.96910.96980.97340.97460.97820.97980.97850.9801

  1. Y, WL, L, WS, CR3, HHI, CER, EXR, ASR, IR, and FER denote the value added, aggregate wages, number of workers, wage share, CR3, HHI, capital-equipment ratio, export ratio, advertising-to-sales ratio, interest rates, and foreign exchange rate, respectively. Standard errors are reported in parentheses. *, **, and *** denote that coefficients are significant at the 10%, 5%, and 1% levels, respectively. The sample period is from 2000 to 2011.

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Published Online: 2017-9-15

©2018 Walter de Gruyter GmbH, Berlin/Boston

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https://doi.org/10.1515/bejm-2016-0188
Keywords for this article
imperfect competition; income distribution; labor income share; market concentration

Articles in the same Issue

  1. Advances
  2. Luxury consumption, precautionary savings and wealth inequality
  3. Unemployment insurance with limited commitment wage contracts and savings
  4. The marriage unemployment gap
  5. Fertility and labor supply of the old with pay-as-you-go pension and child allowances
  6. Optimal pensions in aging economies
  7. Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market
  8. An empirical note on the long-run relationship between education and religiosity in Christian countries
  9. Accounting for changing returns to experience
  10. Development accounting with intermediate goods
  11. The post-crisis slump in Europe: a business cycle accounting analysis
  12. Rational bubbles in a monetary economy
  13. Capital controls as a credit policy tool in a small open economy
  14. Labor income share and imperfectly competitive product market
  15. Macroeconomic costs of gender gaps in a model with entrepreneurship and household production
  16. Contributions
  17. Comparing the effects of discretionary tax changes between the US and the UK
  18. Erratum
  19. Erratum to: Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data
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