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Do wages squeeze markups? Sectoral-level evidence for Brazil, 2000–2013

Author

Listed:
  • Santos, Diogo Oliveira
  • Britto, Gustavo
  • Ribeiro, Rafael S.M.
  • Cardoso, Debora Freire

Abstract

This paper aims to empirically investigate the relationship between sectoral unit labor costs and markups for the Brazilian economy from 2000 to 2013. The underlying hypothesis is that labor costs are the sole determinant of a firm's competitiveness, a notion that has been widely accepted as conventional wisdom despite the lack of empirical evidence. Our analysis of the Brazilian economy does not provide evidence that the rises in wages squeezed markup rates over this period. Conversely, our study suggests that the compression of markups was influenced by a set of factors, including the costs of service sector inputs, stagnating labor productivity, and international trade pressure. Therefore, our study highlights the need for a more nuanced understanding of the relationship between unit labor costs and markups by shedding some light on the asymmetric impact of different sources of cost pressures and competition on sectoral markups in the Brazilian economy.

Suggested Citation

  • Santos, Diogo Oliveira & Britto, Gustavo & Ribeiro, Rafael S.M. & Cardoso, Debora Freire, 2023. "Do wages squeeze markups? Sectoral-level evidence for Brazil, 2000–2013," Structural Change and Economic Dynamics, Elsevier, vol. 66(C), pages 52-66.
    • Handle: RePEc:eee:streco:v:66:y:2023:i:c:p:52-66
    DOI: 10.1016/j.strueco.2023.04.001
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    More about this item

    Keywords

    Markups; Wage costs; Manufacturing industry; Brazilian crisis;
    All these keywords.

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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