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Testing the superstar firm hypothesis

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  • Caroline Stiel
  • Alexander Schiersch

Abstract

Firms with superior productivity, labeled superstar firms, are argued to be the link between rising concentration and the fall of the aggregate labor share in the US. This analysis confirms that similar evidence is found within the European context: the market share and firm size increase, whereas the labor share decreases with productivity. One of the much discussed mechanisms behind this development is the spreading of fixed overhead labor costs: Highly productive firms gain market share, and can simultaneously spread fixed overhead labor costs over more output, thereby reducing their own labor share and the aggregated labor share of the industry. We show that this mechanism can be tested empirically. However, using German firm-level data, we do not find any empirical evidence of it. Our analysis contributes to the ongoing debate by removing one of the proposed mechanisms from the list of potential explanations for the rise of superstar firms.

Suggested Citation

  • Caroline Stiel & Alexander Schiersch, 2022. "Testing the superstar firm hypothesis," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 583-603, December.
    • Handle: RePEc:taf:recsxx:v:25:y:2022:i:1:p:583-603
    DOI: 10.1080/15140326.2022.2029071
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    Cited by:

    1. Pardesi, Mantej, 2024. "Productivity convergence and firm’s training strategy," ROA Research Memorandum 003, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    2. Pardesi, Mantej, 2024. "Productivity Convergence and Firm’s Training Strategy," Research Memorandum 003, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Biondo, A.E. & Pluchino, A. & Zanola, R., 2024. "Simulating the emergence of superstar firms: The role of luck vs talent," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 644(C).
    4. Chara Vavoura, 2024. "The Rise of the Superstars: Uncovering the Composition Effect of International Trade That Cements the Dominant Position of Big Businesses," Mathematics, MDPI, vol. 12(10), pages 1-21, May.

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    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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