In this video, Barcelona School of Economics Research Professor Jan Eeckhout (ICREA-UPF and BSE) talks about his ERC Advanced Grant project that explores the relationship between the rise of market power and the profound macroeconomic changes of the past 40 years.
In the last four decades, there have been a number of significant secular trends around the world. Wage inequality has risen sharply, and most of the wage gains have been appropriated by the top 1%. In addition, labor market dynamism and new startups have declined, the labor share of total output has fallen, low skilled wages have stagnated, and there has been reallocation of production from small to superstar firms. During the same four decades, there has also been a sharp secular increase in market power. Firms set higher prices, profit rates are higher, and scale economies are up.
In this project, I will explore whether these secular trends are related. Specifically, I ask whether the rise of market power has caused these profound macroeconomic changes, in order to uncover economic mechanisms that help understand this fundamental transformation and the implications for efficiency and welfare.
The close link between the macroeconomic consequences and the causes of market power puts this research at the intersection of macro/labor, industrial organization, and law and economics. The ultimate objective of the project is to inform the policy debate and determine how to keep market power under control in order to remediate macroeconomic consequences that were, until now, considered independent.
This video series is one of the Barcelona School of Economics research initiatives supported by the Severo Ochoa Research Excellence Program (CEX2019-000915-S) through Spain’s State Research Agency (Agencia Estatal de Investigación – AEI).