Privatization and the Decline of Labour’s Share: International Evidence from Network Industries Ghazala Azmat,AlanManning†and John Van Reenen‡ January 2011 Abstract Some authors have suggested that the deregulation of product and labour markets is responsible for the decline in labour’s share of GDP. A simple model predicts that privatization is associated with a lower labour share, due to job shedding. We test this hypothesis by focusing on privatization of network industries in the OECD. We find that, on average, privatization accounts for a fifth of the fall of labour’s share and over half in Britain and France. The e§ect is due to lower employment, but it is partially o§set by higher wages and falling barriers to entry, which dampen profit margins. JEL classification: E25, E22, E24, L32, L33, J30 Keywords: Labor share, Wages, Privatization, Entry Regulation. Universitat Pompeu Fabra and Barcelona GSE. Address: Department of Economics and Business, Uni- versity Pompeu Fabra, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain. Email:
[email protected]. Tel.: +34-93542-1757. †London School of Economics and Centre for Economic Performance. Address: Centre for Economic Performance, LSE, Houghton Street, London WC2A 2AE, UK. Email:
[email protected]. Tel: +44(0)20- 7955-6078. ‡London School of Economics and Centre for Economic Performance, NBER and CEPR. Address: Centre for Economic Performance, LSE, Houghton Street, London WC2A 2AE, UK. Email:
[email protected]. Tel: +44(0)20 7955 6976 1 INTRODUCTION Capitalists are grabbing a rising share of national income at the expense of workers1.