Stagnating real wages and falling labour shares across developed economies have stimulated a renewed interest in the question of how, and to what extent, rents are shared with labour. Nicholas Kaldor’s (1957) long-held stylised fact that the fraction of national income going to labour is fixed has been questioned, for instance, by Karabarbounis and Neiman (2014), who show that the global labour share has dropped from 65 per cent in 1980 to 59 per cent today. Over the same period US labour productivity has grown by 90 per cent but the median real wage only by a paltry 10 per cent, rekindling debates about whether growth benefits workers dating from as far back as Ricardo to the highly influential contemporary work of Thomas Piketty.
In response to these developments, scholars have again turned their attention to firms and their wage-setting process. David Autor, John Van Reenen and co-authors (2017), building on the seminal works of Michał Kalecki (1938), have recently reconnected the distribution of income with the behaviour of firms and their market power. The question is how the power structure in product and labour markets translates into wage stagnation and a lower labour share? A classic account is that workers lose bargaining power, and therefore they are less able to claim a portion of a firm’s rents — a phenomenon known as rent sharing. Knowing how rent sharing has evolved over time can therefore help understand changes in the position of workers within companies and shed light on the mechanisms behind the fall in the labour share. However, and at least in part owing to a lack of data, the reality is that little is known about long-run changes in rent sharing.
Our recent paper (Bell et al. 2018) aims to redress this by looking at the long-run evolution of rent sharing among UK-domiciled companies. It features the compilation of a comprehensive and consistent panel of the top 300 companies by market capitalisation listed on the London Stock Exchange from 1983 until 2016. The sample includes well-known British companies, such as BP, British American Tobacco, Tesco and G4S, which have played an important role in the British economy throughout the last few decades. It also covers all sectors of the economy, which is crucial given the dramatic shift from manufacturing to services occurring in the UK since the 1980s.