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Market power, input substitution and the labor share

Author

Listed:
  • Jing Hang

    (Sun Yat-sen University)

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.

Suggested Citation

  • Jing Hang, 2025. "Market power, input substitution and the labor share," Economics Bulletin, AccessEcon, vol. 45(2), pages 970-978.
    • Handle: RePEc:ebl:ecbull:eb-25-00088
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    Keywords

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    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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