Pricing Government Demand: Competition, Markups, and the Labour Share

Sampreet Singh Goraya, Stjepan Srhoj and Jurica Zrnc ()
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Jurica Zrnc: Croatian National Bank

No 2026-5, HoSS Working Paper Series from Stockholm School of Economics, House of Sustainable Society (HoSS)

Abstract: This paper studies how government demand affects the labor share of income. Winning a procurement contract lowers a firm’s labor share. The decline is driven by higher revenue per worker with limited pass-through to wages, and these revenue productivity gains reflect rising firm-level markups rather than improvements in physical efficiency. The effects are strongest for firms winning contracts as the only bidder. Evidence from bids, award prices, and political connections points to limited competition in procurement as the driving force. Government demand thus shapes the division of income between firm owners and workers, with implications for inequality.

Keywords: public procurement; market power; labor share; competition; political connections (search for similar items in EconPapers)
JEL-codes: D24 D43 H57 L11 L22 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2026-09-28
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