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The Rise of Market Power and the Macroeconomic Implications

45 Pages Posted: 21 Aug 2017  

Jan De Loecker

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Jan Eeckhout

University College London - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: August 2017

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.

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Suggested Citation

De Loecker, Jan and Eeckhout, Jan, The Rise of Market Power and the Macroeconomic Implications (August 2017). NBER Working Paper No. w23687. Available at SSRN: https://ssrn.com/abstract=3023087

Jan De Loecker (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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HOME PAGE: http://pages.stern.nyu.edu/~jdeloeck/

Centre for Economic Policy Research (CEPR) ( email )

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London, EC1V 3PZ
United Kingdom

Jan Eeckhout

University College London - Department of Economics ( email )

30 Gordon Street
London WC1E 6BT, WC1H 0AX
United Kingdom

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