Cause inequality

The result of four decades of Chicago School antitrust theory and policy on industrial structure in the United States can now be seen in today’s increased levels of industrial concentration. As Jonathan Baker and Steven Salop (2015) contend, the United States now has a “market power” problem which contributes to slower overall growth and increased economic inequality.10 Barack Obama’s Council of Economic Advisors (CEA 2016)highlighted its concern with decreased competition in the U.S. economy. Gustavo Grullon, Yelena Larkin, and Roni Michaely (2019) also report that, over the last two decades, more than 75% of U.S. industries have seen an increase in concentration levels, with an average increase in concentration of 90% (See also Gutierrez and Philippon 2017; Autoret al. 2017; Gao, Ritter, and Zhu 2013; Doidge, Karolyi, and Stulz 2017; Kwoka 2017).Thomas Philippon (2019) supports these findings, arguing that laxer scrutiny and “excessive tolerance” 11 of mergers in the United States has contributed to a rise in the pace of merger activity and further consolidation of firms (i.e., the Chicago School of Antitrust).What are the implications of this increase in industrial concentration for corporations and for labor? Clearly, corporations have done well. Several studies have documented higher returns to capital from higher rates of market power. German Gutierrez and Thomas Philippon (2017) find that the profit share has increased across all industries since the 1970s,consistent with a rise in concentration and market power. The CEA brief (2016) identified higher economic rents especially for firms at the ninetieth percentile. Grullon, Larkin,and Michaely (2019, 698–699) identify “higher returns on assets . . . driven primarily by a given firm’s ability to extract higher profit margins,” especially for firms in industries with increasing concentration levels. 12 Although corporations have enjoyed these higher returns to capital, labor has lost ground over the years: as Joseph Stiglitz (2012) argues, the increase in economic rents has shifted income from labor and toward capital, increasing economic inequality (See also Furman and Orszag 2018). David Autor et al. (2017) also conclude that industries with the largest increases in concentration have seen the largest declines in the labor share. Kaushik Basu and Joseph Stiglitz (2016) find that the increase in economic rents is in turn causing an increase in wealth inequality.