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

Author

Listed:
  • Goraya, Sampreet Singh
  • Srhoj, Stjepan
  • Zrnc, Jurica

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.

Suggested Citation

  • Goraya, Sampreet Singh & Srhoj, Stjepan & Zrnc, Jurica, 2026. "Pricing Government Demand: Competition, Markups, and the Labor Share," GLO Discussion Paper Series 1820, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1820
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    File URL: https://www.econstor.eu/bitstream/10419/344027/1/GLO-DP-1820.pdf
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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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