## Book review — The Profit Paradox (Eeckhout)

## Source details

**Canonical URL:** [Book review — The Profit Paradox (Eeckhout)](https://www.imf.org/-/media/files/publications/fandd/article/2021/june/book-review-the-profit-paradox-eeckhout.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/fandd/article/2021/june/book-review-the-profit-paradox-eeckhout.pdf.md)
- [Structured JSON version](/-/media/files/publications/fandd/article/2021/june/book-review-the-profit-paradox-eeckhout.pdf.json)

---

### Context and central thesis
- The pre-COVID world exhibited: slow overall growth despite new technologies, declining labor’s share of income, rising top incomes, and stagnating or falling wages for low- and medium-skilled workers.
- The pandemic reinforced these trends: output remains far below its no-COVID path, low-skilled workers suffered the brunt of job losses, and dominant firms thrived while many smaller enterprises struggled.
- Jan Eeckhout’s central claim: new technologies can still deliver large gains in living standards, but the rise of dominant firms—driven by winner-takes-all dynamics of new technologies and weak pro-competition policies—has concentrated gains in firms and top incomes, producing a “profit paradox” where massive profits and booming stock markets are not beneficial for workers.

### Evidence and argumentation
- Methods: mix of cutting-edge academic research, personal stories, and examples spanning industries (beer, textiles, online advertising).
- Linkages drawn:
  - Market power as a driver of workers’ woes.
  - Market power amplifies broader social ills, including declining social and geographical mobility, rising mortality, and climate inaction, via firms leveraging power to influence policy.
- Geographic contrast:
  - U.S.-focused evidence raises questions about cross-country lessons.
  - Europe: labor force participation has not fallen in recent decades; increases in wage inequality and declines in labor income shares have been much more modest than in the United States.
  - Europe stopped converging to US living standards four decades ago—prompting questions about whether differences reflect Europe’s lesser embrace of new technologies, stronger antitrust enforcement, both, or other factors.

### Open questions and limitations noted by reviewer
- The book argues for some role of market power but leaves open how large that role is in causing worker harm.
- Counterfactual concern: Had market power been contained, would the (increasingly labor-saving) nature of technological progress still have hurt workers, as suggested by work by Daron Acemoğlu and Pascual Restrepo?
- Policy implication uncertainty: If technological change alone would have harmed workers, would addressing market power suffice to deliver broad prosperity?

### Policy recommendations and proposals highlighted
- Strengthen antitrust enforcement.
- Rethink intellectual property rights.
- Specific proposals from Eeckhout mentioned:
  - Ex-post fines on mergers that fail to deliver.
  - “Inverse” data patents that grant collectors of data only temporary exclusivity.
- Reviewer’s takeaway: antitrust frameworks are being reconsidered on both sides of the Atlantic, and Eeckhout’s argument is a reminder that the rethink must be substantial.

### Publication details and review attribution
- Jan Eeckhout, The Profit Paradox: How Thriving Firms Threaten the Future of Work, Princeton University Press, Princeton, NJ, 2021, 336 pp., $27.95.
- Review published June 2021 in Finance & Development, page 65.
- Review by ROMAIN DUVAL, assistant director, IMF Research Department.

*Source: book-review-the-profit-paradox-eeckhout (PDF).*

---


_Source: https://www.imf.org/-/media/files/publications/fandd/article/2021/june/book-review-the-profit-paradox-eeckhout.pdf_