ISER Internal Seminar: Whom or What Does the Representative Firm Represent? Firm Heterogeneity and the Aggregate Labour Share

Sandwiches from 12:15, Seminar at 12:30

In a simple static model of firm behaviour with imperfect competition on the product and labour markets, we show that firm heterogeneity in terms of technology, market power, capital, prices and wages affects the labour share. In particular, we show that if elasticity of substitution between capital and labour is below 1 (the empirically relevant case), an increase in between-firms wage dispersion decreases the aggregate labour share. We then provide a full statistical characterisation of the effect of heterogeneity in terms of the first moments of the textit{joint distribution} of these variables across firms, and quantify the relevance of each component using UK firm-level data.