How to save the market economy ⭐️ Isabel Martínez

Labor’s share of GDP has declined in industrialized countries over the past 30 years, meaning that a decreasing share of total income goes to workers while business owners receive more. While productivity has steadily increased, wages of nonsupervisory workers have stagnated and the share of start-ups in the total of all companies has steadily decreased since 1980. Does today’s market economy undermine democracy by producing increasingly unequal outcomes? Is the market economy broken? How can it be restored? What incentives, mechanisms, and regulations are needed?
Isabel Martínez is an Economist working on topics around the distribution of income and wealth, how we tax these things, and how people’s behavior responds to taxes. Since April 2020, she has been holding a research position at KOF Institute at ETH Zurich. During the Fall term 2021/22, she was Distinguished Visiting Scholar at the City University of New York (CUNY). She is a CEPR Research Affiliate, a Fellow of the World Inequality Database Project (WID.world) and of the SIAW Institute at the University of St.Gallen, where she completed her PhD in 2016. From fall 2017 until spring 2020 she worked as an economist for the Swiss Federation of Trade Unions SGB-USS. Since 2018, Martínez represents the trade unions in the Swiss Competition Commission as an elected Member of the Commission.
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Since 1980, the world economy has experienced an increase of dominant firms. Dominant firms face limited competition in their market and exert monopoly power. Why has this happened, and why did it start in 1980? The rise of dominant firms has a direct impact on customers who pay higher prices, but it also has far-reaching implications for the macroeconomy. Widespread market power leads to wage stagnation and a decline in the labor share, it increases wage inequality, it slows down business dynamism, it reduces the number of startup firms and lowers innovation.
In the public paper 'Dominant firms in the digital age', Jan Eeckhout reviews the determinants of the rise of dominant firms, discusses the causes and consequences, and proposes directions for policy solutions.
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