Market power, input substitution and the labor share

Jing Hang ()
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Jing Hang: Sun Yat-sen University

Economics Bulletin, 2025, vol. 45, issue 2, 970 - 978

Abstract: An increase in the aggregate markup induces substitution of primary inputs for intermediate inputs, and substitution of labor for capital. Both effects lower the labor share if the inputs are complements. A reasonable calibration shows that a 4% increase in the markup lowers U.S. labor share by 7.5 percentage points, with input substitution accounting for about one third of the total impact.

Keywords: markup; labor share; double marginalization; input substitution (search for similar items in EconPapers)
JEL-codes: E2 O4 (search for similar items in EconPapers)
Date: 2025-06-30
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