Superstar Firms and Labor Share Decline: The Role of Digitalization in France, Germany, Italy, and Spain
Superstar Firms and Labor Share Decline: The Role of Digitalization in France, Germany, Italy, and Spain

Summary/Abstract: This paper investigates the interplay between market concentration, firm size, labor productivity, wages, and labor share in four European economies (France, Germany, Italy, and Spain) through the lens of the superstar firms hypothesis. Using firm-level data from CompNet and digitalization indicators from EU-KLEMS, the analysis reveals a robust negative and nonlinear relationship between labor share and total factor productivity (TFP), supporting the notion that high-productivity superstar firms allocate a smaller share of value-added to labor. At the industry level, a positive association exists between market concentration and labor productivity/wages, while a negative correlation is found with labor share. Within industries, firm size is positively linked to labor productivity and wages but negatively to labor share. While digital capital investments significantly increase productivity and wages among top-quintile firms, they show no significant moderating or accelerating effect on labor share declines. The findings suggest that digitalization benefits accrue disproportionately to larger firms, while labor share erosion continues alongside rising productivity and concentration.

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