The decline of the labor share in both national income and corporate value added and the rise in corporate saving in many countries since the 1980s has emerged as a critical area of economic inquiry, raising significant macroeconomic and societal concerns. Due to the significance of these developments, particularly in relation to growing external imbalances, these shifts are especially relevant for countries with persistent current account surpluses, such as Germany. This dissertation investigates the underlying firm-level dynamics driving this transformation of the German corporate sector, focusing on the crucial role of family-controlled firms. Germany’s unique institutional characteristics and its export-oriented economy provide the backdrop for the analysis, which explores the connections between declining labor shares, rising corporate saving, and the corporate sector’s net lending position.

The research addresses three core areas: the firm-level changes contributing to the declining labor share, the relationship between labor share declines and corporate saving behavior, and the financial flows underlying the corporate sector’s surplus. Leveraging an original ownership and governance dataset developed specifically for this study, alongside financial information on publicly listed German firms between 1993 and 2022, the analysis highlights the systematic influence of family control on these trends. The dataset combines information from two databases with manually collected ownership records, enabling a level of granularity in identifying family-controlled firms and their governance structures previously unavailable for Germany.

Drawing on counterfactual analyses, the findings reveal that the decline in the aggregate labor share is driven by reductions in the labor shares of incumbent firms rather than shifts in market shares. Among incumbent firms, those that are controlled by individual families are the key drivers of aggregate trends. Regression analyses confirm that family firms consistently exhibit lower labor shares and higher corporate saving than their non-family counterparts – a pattern that intensifies when family members are actively involved in governance, whether through management or supervisory roles. Crucially, the lower labor share is not a reflection of superior productivity but rather associated with wage suppression.

Comparison of firm-specific trends further shows that the rise in corporate saving is a direct consequence of the declining labor share, as increasing profits have not translated into higher payouts to shareholders. Instead of fueling investment, rising saving has primarily contributed to higher net lending to other sectors. As a result, family control emerges as a key factor behind the financial surplus of the corporate sector in Germany.

The results underscore Germany’s unique economic trajectory compared to other countries, challenging generalized interpretations of global trends. They reveal that family firms, central to Germany’s corporate landscape, are instrumental in shaping functional income distribution and macroeconomic imbalances and underscore the role of country specific institutions, especially corporate ownership structures, in shaping economic outcomes.

Beyond these empirical contributions, the dissertation reveals important methodological challenges that significantly affect our understanding of corporate sector dynamics. While the analysis clearly identifies family firms as drivers of rising corporate saving and net lending positions among publicly listed firms, the precise nature of the underlying financial flows remains difficult to determine. This limitation stems from several methodological challenges which are discussed against the backdrop of the empirical findings highlighting the need for careful interpretation in future research.