Working Paper: NBER ID: w23687
Authors: Jan De Loecker; Jan Eeckhout
Abstract: We document the evolution of markups based on firm-level data for the US economy since 1950. Initially, markups are stable, even slightly decreasing. In 1980, average markups start to rise from 18% above marginal cost to 67% now. There is no strong pattern across industries, though markups tend to be higher, across all sectors of the economy, in smaller firms and most of the increase is due to an increase within industry. We do see a notable change in the distribution of markups with the increase exclusively due to a sharp increase in high markup firms. \nWe then evaluate the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the last 3 decades: 1. decrease in labor share, 2. increase in capital share, 3. decrease in low skill wages, 4. decrease in labor force participation, 5. decrease in labor flows, 6. decrease in migration rates, 7. slowdown in aggregate output.
Keywords: Market Power; Macroeconomics; Labor Share; Capital Share; Markups
JEL Codes: D2; D4; E2; J3; K2; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in market power since 1980 (L11) | decrease in labor share (E25) |
| increase in market power since 1980 (L11) | increase in capital share (D33) |
| increase in market power since 1980 (L11) | decrease in low-skill wages (F66) |
| increase in market power since 1980 (L11) | decrease in labor force participation (J21) |
| increase in market power since 1980 (L11) | decrease in labor flows (J69) |
| increase in market power since 1980 (L11) | decrease in migration rates (J11) |
| increase in market power since 1980 (L11) | slowdown in aggregate output (E23) |
| increase in markups (D43) | increase in market power since 1980 (L11) |