Markups, Concentration, and Inequality: New Facts and Policy Implications
Paper Session
Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Timo Reinelt, Federal Reserve Bank of San Francisco
Markups, Labor Market Inequality and the Nature of Work
Abstract
We study how changes in markups affect the distribution of labor income. We distinguish between production and expansionary uses of labor and demonstrate that an increase in markups redistributes earnings away from production labor toward expansionary labor, with ambiguous effects on the overall labor share, depending on the balance of these activities in the economy. Using data on the co-movement of occupational income shares with markup-induced changes in the labor share, we estimate that approximately one-fifth of U.S. labor income compensates expansionary activities and that occupations with the largest expansionary content have also experienced the fastest wage and employment growth since 1980. Our framework can be applied more generally to study the distributional implications of shocks, policies and secular forces that affect the economy by changing markups.Concentration and Markups in International Trade
Abstract
This paper examines the relationship between concentration and markups in international trade, emphasizing the role of bilateral market power and network rigidity. We show that markups depend on both supplier and buyer concentration, introducing novel pair-level market definitions and concentration measures that capture the persistence of trade linkages. Applying our framework to Colombian import data from 2011 to 2020, we find that rising bilateral supplier concentration increased markups, while high bilateral buyer concentration partially offset this effect. Standard concentration measures, which treats industries as markets where sellers set prices unilaterally, would have overlooked these channels.A Tale of Two Markups: Reconciling Supply- and Demand-Based Estimates
Abstract
Combining sales and price scanner data with firm balance sheet data, we estimate firm-level price markups using two widely used methods, based on production function estimation and demand system estimation. Despite their theoretical equivalence in many general equilibrium frameworks, the two methods result in markup estimates negatively correlated across firms. We propose a demand system that allows for household heterogeneity and its impact on market shares, showing that the resulting demand-based markups become positively correlated with supply-based markups estimated with flexible production functions and firm-specific prices.Discussant(s)
Sebastian Heise
,
Federal Reserve Bank of New York
Sergio Salgado
,
University of Pennsylvania
Kunal Sangani
,
Stanford University
Paul T. Scott
,
New York University-Stern
JEL Classifications
- E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy
- F1 - Trade