Working Paper: NBER ID: w30491
Authors: Lucia S. Foster; John C. Haltiwanger; Cody Tuttle
Abstract: Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing) and find patterns in support of changing technology as the driver of those differences.
Keywords: markups; technology; output elasticities
JEL Codes: L11; O14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| more granular estimates of output elasticities (E23) | lower measured markups (D43) |
| changes in technology (O33) | differences in markup estimates (Y10) |
| changes in technology (O33) | dampened increase in markups (D43) |