 The profit share and firm markup: how to interpret them?Fabrizio Colonna (),
Roberto Torrini and
Eliana Viviano
No 770, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Abstract: This paper discusses, theoretically and empirically, the relationship between two indicators: the profit share in value added and markups. While many commentators simply interpret the profit share as a proxy for markup, we show that with a production function with two inputs (i.e. labour and intermediates), the profit share can increase even if markups remain constant or diminish. This occurs when intermediate input costs grow faster than labour costs (as in the current economic situation) and input substitutability is limited (as with energy and labour, in the short run). Unfortunately, markups cannot be easily calculated using national accounts data, but approximate data are available for some sectors in Germany and Italy. We can thus show that markups in industry and in manufacturing remained constant in Germany in 2022, but increased considerably in construction, retail, accommodation and transport. In Italy, instead, markups returned to their pre-pandemic levels following a series of adjustments during the health emergency. Keywords: markup; profit shares; inflation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_770_23 Access Statistics for this paper More papers in Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC. |
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