Markups and business dynamism across industries

Abstract

Recent research connects rising measured market power to other macroeconomic trends in the U.S., including decades-long declines in measures of “business dynamism,” such as business entry and job reallocation. Intuitively, factors that raise market power may also reduce entry, and firms with more market power are less responsive to shocks. Such theories predict a negative correlation between markups and business dynamism. We use industry-level data to study long-run trends and annual patterns of markups and dynamism. Using multiple measures of each, we find no systematic industry-level negative correlation between changes in markups and changes in dynamism from the 1980s through the 2010s. In fact, we are more likely to observe the opposite relationship.