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Canada

A Q-Theory of Inequality

We study the effect of interest rates on top wealth inequality. While lower rates decrease the average growth rate of existing fortunes, they increase the growth rate of new fortunes by making it cheaper to raise capital. We develop a sufficient statistic approach to express the effect of interest rates on the Pareto exponent of the wealth distribution: it depends on the average equity issuance and leverage of individuals reaching the top. Quantitatively, we find that the secular decline in real interest rates has been a major contributor to the rise in top wealth inequality in the U.S.

Productivity Dispersion, Between-Firm Competition, and the Labor Share

I propose a tractable model of the labor share that emphasizes the interaction between labor market imperfections and productivity dispersion. I bring the model to the data using an administrative dataset covering the universe of firms in Canada. As in the data, most firms have a high labor share, yet the aggregate labor share is low due to the disproportionate effect of a small fraction of large, extremely productive "superstar firms". I find that a rise in the dispersion of firm productivity leads to a decline of the aggregate labor share in favor of firm profit. The mechanism is that productivity dispersion effectively shields high productivity firms from wage competition. Reduced-form evidence from cross-country and cross-industry data supports both the prediction and the mechanism. Through the lens of the model, rising productivity dispersion has caused the U.S. labor share to decline starting around 1990.