We've frequently written in recent months about the unintended consequences of politicians meddling in labor markets by setting artificially high minimum wage rates (see "State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds"). Of course, the combination of higher wages and declining technology costs are wreaking havoc on labor markets as they serve to significantly improve the return on invested capital profile of new labor-replacing capital projects. Here are just a few examples:
There's the Big Mac ATM...
Uber's autonomous vehicle, which is sure to put a dent in the number of taxi drivers needed over the next decade...
And there are even autonomous tractors that come complete with cameras, radar, GPS and a tablet remote control but it's missing 1 key thing...a seat for a driver.
In fact, as Bloomberg points out today, total compensation as a percent of GDP in the United States has been on the decline for decades with a sharp decline corresponding with the tech boom of the 2000s.
But, it's not just technology and labor-replacing capital investments driving aggregate wages lower. As a working paper for the National Bureau of Economic Research notes, market share consolidation has also had a huge impact on aggregate wages as larger companies are able to defray the impact of fixed labor overhead.
Autor and his fellow authors say superstar companies, because they're big, can defray fixed labor costs such as headquarters staff over a bigger base of revenue and profits. But why are there more such companies now than in the past? One theory they discuss is that new "competitive platforms," such as the ability to compare prices on the internet, make it easier for the best companies to set themselves apart. Or it could be the proliferation of "information-intensive goods" such as software, which require relatively few people to produce in volume.
Using data from 676 industries in six sectors in the Economic Census, the authors find that the share of revenue controlled by the top four companies in an industry rose on average from 38 percent in 1982 to 43 percent in 2012 in the manufacturing sector; from 24 percent to 35 percent over the same period in finance; and from 15 percent to 30 percent in the retail trade. Concentration also rose in services and wholesale trade while falling slightly in utilities.
Next, the authors showed that the labor share fell the most in the industries with the greatest increases in concentration. They found no evidence that the superstars' gains were ill-gotten. The increasing concentration seemed to be a sign of business success, not lobbying: The industries in which concentration increased the most, they found, were the ones that had the strongest growth in workers' productivity.
Per the charts below, the study found that industries with the highest growth in market share concentration also had the worst performing labor markets over the past three decades.
Conclusion: Technology and markets "increasingly concentrate rewards among firms with superior products or higher productivity—leading to better quality or lower costs—thereby enabling the most successful firms to control a larger market share."
Unfortunately, we're likely in the early innings of this downward spiral.