Profitability of Industries, Labour Market Flows, and Creative Destruction in Finnish Manufacturing

Abstract

An often-expressed concern is that new technologies related to e.g. automation and robotization accelerate job destruction and increase the capital income share. We use Finnish plant and firm level data to see whether these developments are taking place in Finland. We sort industries into four groups based on their technology level using an OECD industry classification.

The capital share depends not just on technology but also on competition between firms. Competition influences the capital income share via two opposing mechanisms. On the one hand, competition for workers increases the wage level thereby decreasing the capital income share. On the other hand, competition accelerates the process of “creative destruction”, where the most productive and profitable firms expand while others downsize or exit the market altogether. This process works to increase capital income share.

We find that there is a lot of creative destruction occurring in industries with a high level of technology. However, there is no clear trend in job creation or destruction rates in any of the four industry groups. The capital income share has not increased from mid 1990s to 2006 even in industries with a high technology level.

Publication info

Series
ETLA Muistio - ETLA Brief 74
Date
17.12.2018
Keywords
Creative destruction, Capital income share, Labour market flows
ISSN
2323-2463
JEL
033, E25
Pages
9
Language
Finnish