Rising Markups or Changing Technology?
Recent evidence suggests the U.S. business environment is changing, with rising market concentration and markups. The most prominent and extensive evidence backs out firm-level markups from the first-order conditions for variable factors. The markup is identified as the ratio of the variable factor’s output elasticity to its cost share of revenue. Our analysis starts from this indirect approach, but we exploit a long panel of manufacturing establishments to permit output elasticities to vary to a much greater extent - relative to the existing literature - across establishments within the same industry over time. With our more detailed estimates of output elasticities, the measured increase in markups is substantially dampened, if not eliminated, for U.S. manufacturing. As supporting evidence, we relate differences in the markups’ patterns to observable changes in technology (e.g., computer investment per worker, capital intensity, diversification to non-manufacturing), and we find patterns in support of changing technology as the driver of those differences.
John Haltiwanger and Cody Tuttle were part-time Schedule A employees at Census at the time of the writing of this paper. Any opinions and conclusions expressed herein are those of the authors and do not represent the views of the U.S. Census Bureau. The Census Bureau's Disclosure Review Board and Disclosure Avoidance Officers have reviewed this data product for unauthorized disclosure of confidential information and have approved the disclosure avoidance practices applied to this release (DRB Approval Number: CBDRB-FY20-CED006-0022, CBDRB-FY22-CED006-0016). We thank Daron Acemoglu, Jan De Loecker, Mert Demirer, Jan Eeckhout, John Eltinge, Cheryl Grim, Devesh Raval, Pascual Restrepo, and participants at the NBER 2021 Summer Institute, the 2022 Montreal Conference on Markets with Frictions, and seminar participants at Dartmouth and the Erasmus School of Economics for their helpful comments on earlier drafts. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.