Work

The Rise of Market Power and the Macroeconomic Implications

Year: 2017

Type: report

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.We 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.

Source: National Bureau of Economic Research

DOI: 10.3386/w23687

Authors: Jan De Loecker, Jan Eeckhout

Institutions: National Bureau of Economic Research, Princeton University, University College London, KU Leuven

Language: English

Topic: Merger and Competition Analysis

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

Funders: Fonds Wetenschappelijk Onderzoek, FP7 Ideas: European Research Council