Project description
When market power tilts the balance and shapes inequality
In advanced economies, a handful of firms have captured an ever-growing share of profits, while workers’ share of income declines. This is what economists call ‘market power’. It is the ability of large firms to set prices, wages, and the rules of the game. The ERC-funded MACRO_POWR_DISTRBUTN project aims to explain how this power shapes inequality. Using data from Belgium and the USA, the project will study firm size, financial constraints, and automation to determine how these factors influence wages, profits, and investment. The project’s goal is to explain why some companies enjoy higher profits but pay proportionally less to labour and how smarter policies could restore balance between efficiency and fairness.
Objective
Market power is about the distribution of economic surplus between firms, customers and workers. In this proposal, I use modern heterogeneous agents macro tools that incorporate heterogeneity in firm productivity, in preferences, and in market structure. I investigate the macroeconomic mechanisms that link market power and distributional characteristics and formulate welfare-improving policies that lead to efficiency gains and re-distribution.
I propose a unifying framework of market power and distribution in general equilibrium, and use unique data to address the following 3 questions:
1. How does firm size determine monopsony power? Large firms have lower markups yet higher markdowns. This is a key determinant behind the lower labor share in superstar firms, but we have no mechanism that explains why. I propose to use the unifying framework and Belgian VAT transaction data combined with matched employer-employee data to quantify the economic mechanism by which markdowns vary in the firm size distribution.
2. How do financial frictions influence market power? Low productivity firms tend to face tighter financial constraints, leading to higher dispersion in the distribution of capital and technology. This in turn increases market power. I have access to data from a private bank (Caixabank) on a representative sample of firms' payroll, accounts, as well as credit. Within the unifying framework I aim to quantify the impact of financial frictions on the distribution of market power.
3. How does labor-saving technological change affect the distribution of the labor share and market power? Technology adoption is driven by the firm's attempt to increase profitability. Incorporating general equilibrium effects and market power, I propose to analyze the substitution patterns within and between firms with the introduction of new technologies. I will use US Census data to quantify the distributional effects of labor-saving technological change.
Fields of science (EuroSciVoc)
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CORDIS classifies projects with EuroSciVoc, a multilingual taxonomy of fields of science, through a semi-automatic process based on NLP techniques. See: The European Science Vocabulary.
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Project’s keywords as indicated by the project coordinator. Not to be confused with the EuroSciVoc taxonomy (Fields of science)
Programme(s)
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
Multi-annual funding programmes that define the EU’s priorities for research and innovation.
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HORIZON.1.1 - European Research Council (ERC)
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Funding scheme (or “Type of Action”) inside a programme with common features. It specifies: the scope of what is funded; the reimbursement rate; specific evaluation criteria to qualify for funding; and the use of simplified forms of costs like lump sums.
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Call for proposal
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Procedure for inviting applicants to submit project proposals, with the aim of receiving EU funding.
(opens in new window) ERC-2024-ADG
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08002 Barcelona
Spain
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