Margins up, wages down, since 1980

[thriftyandboringinohio]

So a recent paper, The Rise of Market Power and the Macroeconomic Implications, by Loecker and Eeckhout ( http://www.nber.org/papers/w23687.pdf ) points out that gross margins are up sharply since 1980. And we've all seen the lower chart that shows wages disconnected from productivity about the same time.
Odd correlation, seems like it might be insightful.

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[thriftyandboringinohio]

Re: Margins up, wages down, since 1980

here's an interesting exploration of the ideas in that paper

http://noahpinionblog.blogspot.com/2...wer-story.html

[GRG55]

Re: Margins up, wages down, since 1980

The concentration of production could have something to do with it, but I wonder if the dramatic shift in the economy is a larger factor?

From steel, cars and other heavy industries, to one now much more weighted to services and technology. The services sector includes a large number of professional jobs (that pay better than factory production lines) that didn't exist, or were not as prevalent as they are now - environmental engineers and tax accountants are a couple of examples. Software can be replicated or "tuned" at virtually no cost, but commands huge margins once the development cost is covered - one example is some of the software used in aviation, which allows a menu of increasingly sophisticated features for additional subscription, and is "switched on" by the supplier, as every version sold is the exact same complete set of code in every unit.

The other variable is capital intensity. Doubling factory output generally required investing twice as much money in floorspace, machines and trained personnel to expand. No such linearity in many of the new economy dominant industries, including FIRE. No wonder margins have expanded.

[thriftyandboringinohio]

Re: Margins up, wages down, since 1980

Thanks GRG55.
I see your point, you might be right.
Your comments about capital intensity make me think about global overcapacity.
In most global industries now there is a lot of spare productive capacity, so they can add a second or third shift with zero capital investment.
Steel. Autos. Concrete.