Correspondingly, the labor share in Firm A's output is zero percent with a capital share of 80 percent. If Firm B's market share is larger, so is the aggregate labor share, and vice versa. This situation translates into higher market power for each firm, allowing them to raise their prices without losing much market share. The reallocation of production triggered by higher markups can therefore work in the opposite direction and raise the labor share in equilibrium. The macroeconomic equilibrium effects further complicate the assessment of how the labor share responds to a change in markups.

Source: Wall Street Journal February 05, 2024 20:16 UTC