The heightened use of production networks has multiplied the contractual

The heightened use of production networks has

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The heightened use of production networks has multiplied the contractual relationships among producers and suppliers, conferring on them legal claims to the value produced by the network that extend beyond an organization’s own contributions to production and reflect interfirm power relations. Firms with the greatest financial clout, market power, or patent or copyright protections are able to claim the largest part of the value—rents and profits—created by the network. They may share some of these rents with workers, due perhaps to unions or internal norms (Furman and Orszag 2015). Meanwhile, the weakest organizations in a production network struggle to
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Appelbaum 517 remain viable; the wages and employment security of their workers take the largest hit. Negative outcomes for these workers are limited only by social and political movements such as the Fight for $15, by employment laws such as the minimum wage, or by the strength of unions (Grimshaw, Willmott, and Rubery 2005).The emergence of new financial actors since the late 1970s—activ- ist hedge funds, private equity firms, real estate investment trusts, and increased use of debt by public and private companies—creates another layer of legal claims on value generated in pro- duction networks. Differences in the ability of organizations in a network to extract rents lead, in the first instance, to a redistribution of capital claims on value among enterprises; it does not necessarily imply an increase in the share of corporate earnings in GDP (Katari and Baker 2015). Higher earnings of corporations that are able to extract value may be offset by the lower margins in weaker firms. Other measures, however, do exhibit declines in the share of output going to work- ers. Labor’s share of sales revenue of U.S. companies has declined (Barkai 2016: 9, 24–26), as has labor’s share of national income—a broader concept than corporate profits (Council of Economic Advisers 2016: 1). The structure of firms has undergone a major evolution in the past three decades, as vertically integrated companies have focused on core competencies and out- sourced many tasks previously performed in-house or by subsidiaries. It is the increasing pres- ence of production networks, and differences in the ability of lead and contractor firms in the network to extract value, that contribute prominently to the rising inequality in earnings among firms and establishments. This is the means by which rents are extracted at the point of production. Workers experience these effects more directly and more persistently than the effects of rents extracted from them as consumers or taxpayers. 2.1. From vertically integrated firms to domestic outsourcing and production networks 1 For much of the twentieth century, a significant part of economic activity took place in vertically integrated corporations in which hierarchical forms of organization replaced the market as the primary form of coordinating production. Economists explain this development in terms of trans- action costs (Coase 1937; Williamson 1975, 1985). Firms and markets, in this framework, are
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