Surplus Division between Labor and Capital: A Review and Research Agenda

Abstract

The division of firm surplus between labor and shareholders, and its impact on firms’ value creation, are central topics in strategy theory and practice. Early studies of value appropriation within firms devoted considerable attention to the dynamics of bargaining between labor— typically, organized labor—and the owners of capital. Since the 1960s, however, a decline in unionization across most of the major economies and a series of technological and economic changes have led to profound shifts in the bargaining process between labor and capital. This review synthesizes the findings of prior literature and argues for three increasingly important and often-overlooked consequences of these changes. First, individual bargaining has dramatically expanded the range of worker characteristics, values, and preferences that can now be accommodated in employment arrangements. Second, surplus division has become a strategic variable that organizations can differentiate on. Third, labor-market institutions have become more varied, and their role in setting the terms of negotiation has become more prominent.