As part of the Brown Bag Lunch series, the International Economics Department at the Graduate Institute is pleased to invite you to a public talk given by Chao Shen, PhD student in International Economics.

Firm Heterogeneity, Kaldor Fact, Market Concentration, and the Rising Markup

Abstract: By developing a heterogeneous firm model, the paper shows that a change in the firm TFP distribution could quantitatively explain three recent observed empirical phenomena: (1) the decline in labor share; (2) the market concentration; (3) and the rising markup. The model modifies the Nested-CES demand system by linking up the firm TFP with markup and sales share. When the firm TFP distribution’s right tail becomes thicker, the market concentrates—the firm markup and macro markup rise, leading to a decline in labor share. Then the paper evaluates the welfare losses due to the markup mechanism. The results find a 6.29% aggregate TFP misallocation due to markup dispersion and a 27.97% wage losses due to the markup mechanism in 2015.