The Industrial Revolution in Services
- Date Posted:
- Is Database:
- Database
- Is Important:
- Important
US industry concentration rose from 1977 to 2013, driven by a new industrial revolution in services, retail, and wholesale sectors, where top firms adopted technologies to standardize & scale non-traded services.
Chang-Tai Hsieh and Esteban Rossi-Hansberg, "The Industrial Revolution in Services," National Bureau of Economic Research, June 2019, https://www.nber.org/papers/w25968
new NBER offers nice datapoints supporting your tack that much of the rise in industry concentration in the US was driven by the rise of ~ "chain stores" in a broad sense (driven by their ability to produce at lower marginal costs)
"...We argue that the rise in industry concentration is due to companies similar to the Cheesecake Factory and Steward Healthcare that have adopted technologies that enable them to standardize and scale up the delivery of non-traded services. In this sense, what has happened in non-traded services is akin to the industrial revolution unleashed by Henry Ford more than a hundred years ago when Ford introduced mass production to a car industry dominated by independent artisans. We use micro-data from the Longitudinal Business Database from 1977 to 2013 to document the following facts.First, we show that the phenomena of rising concentration documented by Autor et al. (2017) is only seen in three broad sectors - services, wholesale, and retail.As Autor et al. (2017) suggest, top firms have become more efficient over time, but our evidence indicates that this is only true for top firms in these three sectors. In manufacturing, for example, concentration has fallen.Second, rising concentration in these sectors is entirely driven by an increase the number of local markets served by the top firms. Within a typical market served by a top firm in sectors with increasing concentration, we find that employment of top firms is either constant or falling. Specifically, we find that average employment per establishment of top firms falls in sectors with rising concentration.The same is true for employment of top firms in each county they serve.3Third, we find that total employment rises substantially in industries with rising concentration.This is true even when we look at total employment of the smaller firms in these industries. This evidence is consistent with our view that increasing concentration is driven by new ICT-enabled technologies that ultimately raise aggregate industry TFP. It is not consistent with the view that concentration is due to declining competition or entry barriers, as suggested by Gutierrez and Philippon (2017) and Furman and Orszag (2018), as these forces will result in a decline in industry employment.Fourth, we show that the top firms in the economy as a whole have become increasingly specialized in narrow set of sectors, and these are precisely the non-traded sectors that have undergone an industrial revolution. At the same time, top firms have exited many sectors. The net effect is that there is essentially no change in concentration by the top firms in the economy as a whole. The “super-star” firms of today’s economy are larger in their chosen sectors and have unleashed productivity growth in these sectors, but they are not any larger as a share of the aggregate economy.....The rise in national industry concentration in the US between 1977 and 2013 is driven by a new industrial revolution in three broad non-traded sectors: services, retail, and wholesale. Sectors where national concentration is rising have increased their share of employment, and the expansion is entirely driven by the number of local markets served by firms. Firm employment per market has either increased slightly at the MSA level, or decreased substantially at the county or establishment levels. In industries with increasing concentration, the expansion into more markets is more pronounced for the top 10% firms, but is present for the bottom 90% as well. These trends have not been accompanied by economy-wide concentration.Top U.S. firms are increasingly specialized in sectors with rising industry concentration, but their aggregate employment share has remained roughly stable. We argue that these facts are consistent with the availability of a new set of fixed-cost technologies that enable adopters to produce at lower marginal costs in all markets.We present a simple model of firm size and market entry to describe the menu of new technologies and trace its implications...."
Note attached is a WSJ op-ed on the paper by Hsieh and an excellent blog post reviewing the paper by Geoffrey Manne
Ed comment:Great stuff. Parallels another paper you recently sent on the same topic.Surprise, surprise, it turns out Furman, Orsag, Phillipon, and many others respected thought leaders (e.g., Mueller) used their credibly to make misleading claims to the public (e.g., uncompetitive super star bullshit) that they knew they had no right to make, and that they knew the public/liberal media would continue to believe because they are too lazy/busy to see more than what these guys choose to tell/show them.How that’s different than Trump, aside from liberal lying being many orders of magnitude larger and more damaging, is beyond me. When someone claims truth is their highest priority and then chooses the Dem Party, especially ones like you who know enough to know better, it makes me see just how effective the Dems propaganda campaign has been. It has infected everything—the media, education, academics, even UI who have an obligation to know better. It drives me nuts.