Institutional Affiliation: University of Chicago
|Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data|
with , , : w27002
The ratio estimator of a firm's markup is the ratio of the output elasticity of a variable input to that input's cost share in revenue. This note raises issues that concern identification and estimation of markups using the ratio estimator. Concerning identification: (i) if the revenue elasticity is used in place of the output elasticity, then the estimand underlying the ratio estimator does not contain any information about the markup; (ii) if any part of the input bundle is either used to influence demand, or is neither fully fixed nor fully flexible, then the estimand underlying the ratio estimator is not equal to the markup. Concerning estimation: (i) even with data on output quantities, it is challenging to obtain consistent estimates of output elasticities when firms have market powe...
|Markups, Labor Market Inequality and the Nature of Work|
with : w26800
We demonstrate the importance of distinguishing between the traditional use of labor for production, versus alternative uses of labor for overhead, marketing and other expansionary activities, for studying the distribution of both factor income and labor income. We use our framework to assess the impact of changes in markups on the overall labor share and on labor income inequality across occupations. We identify the production and expansionary content of different occupations from the co-movement of occupational income shares with markup-induced changes in the labor share. We find that around one-fifth of US labor income compensates expansionary activities, and that occupations with larger expansionary content have experienced the fastest wage and employment growth since 1980. Our framewo...