Markups and Income Inequality: Causal Links, 1975-2011

52 Pages Posted: 24 Jan 2021

See all articles by Minsoo Han

Minsoo Han

Korea Institute for International Economic Policy

Ju Hyun Pyun

Korea University Business School (KUBS)

Date Written: December 3, 2020

Abstract

Using data for 20 countries during 1975–2011, this study provides new evidence on the association between the lack of competition, measured by an increase in markups, and income inequality. We find that an increase in markups is positively associated with rising income inequality. More interestingly, not only do extra profits from higher markups accrue to the top-income group, but also, within the top-income group (top 10%), the higher top-income earners (top 1%) tend to benefit disproportionately more than the lower top-income earners (top 5% or 10%). Finally, we highlight the role of labor market policies; the positive relationship between markups and income inequality is less pronounced in countries with better labor protection such as the statutory protection and power of labor unions, generous unemployment benefits, and mandatory minimum wages.

Keywords: Income Inequality, Top-income shares, Competition, Markups, Labor market institutions

JEL Classification: D30, D40, D63, J08

Suggested Citation

Han, Minsoo and Pyun, Ju Hyun, Markups and Income Inequality: Causal Links, 1975-2011 (December 3, 2020). Journal of Comparative Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3741829

Minsoo Han

Korea Institute for International Economic Policy ( email )

[30147] Building C, Sejong National Research Compl
Seoul, 370
Korea, Republic of (South Korea)

Ju Hyun Pyun (Contact Author)

Korea University Business School (KUBS) ( email )

145 Anam-Ro, Seongbuk-Gu
Seoul, 02841
Korea, Republic of (South Korea)
82-2-3290-2610 (Phone)

HOME PAGE: http://sites.google.com/site/juhyunpyun/research

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