ESRI Discussion Paper Series No.389 Market Power and Labor Shares : Evidence from Japanese Firm-Level Data

 We analyze the association of market power with labor share in Japan. We first estimate markups as a proxy of market power and present the evidence on the patterns of markups. We find that aggregate markups were stable. This suggests no superstar firm effects, which Autor et al. (2020) find in the United States. While markups are stable at the aggregate level, we present evidence on the microeconomic dynamics of markups. We find the association of markups with firms’ demographics: markups are negatively associated with firm age and size; thus, markups are higher for young and small firms. We also find the patterns of markups at the semi-macro level: markups are higher for nonmanufacturing industries than manufacturing industries. We then explore the macroeconomic implications of the patterns of markups. We show that the rise in market power decreases the labor share and increases the capital share.