Labor market power could rationalise this inconsistency: under monopsony, the labour-based markup captures both price markups and wage markdowns. What we show is that this term of joint market power grows in firm size because larger firms have higher markdowns, not higher markups.

To dig deeper, we got access to a special administrative database on German manufacturing companies, with financial statements matched to firm-level product prices. Immune to price bias, the negative correlation held across a range of specifications.

This started while working on the 8th CompNet data collection (‪@iwh-halle.bsky.social‬). Running some safety checks, we noticed something odd: across all available European countries, the cross-sectional correlation between markups and firm size was consistently negative.

Glad to see my work with Matthias Mertens (@mitsloan.bsky.social‬) forthcoming at Econ Letters!

A short thread for anyone studying market power.

TL;DR: In our data, larger firms exhibit *lower* markups - but much higher markdowns.

www.sciencedirect.com/science/arti...

Lastly, I look at geographical disparities: I estimate higher levels of labour market power in Southern Italy, which account for 40% of the South’s productivity gap with the North.

Calibrating the model, I estimate that moving from a 25% excess MRPL (competitive benchmark) to a 50% excess (typical labour market) results in a 21% drop in aggregate productivity, which combines with lower production labour for a total 35% fall in output.

The observed empirical patterns align with the theory.

At the province-level, labour market power is associated with:
-More misallocation
-More entrepreneurship
-Smaller firm size
-Reduced use of intangibles
-Lower productivity

Here are some empirical findings:

Italian labour markets are far from the competitive equilibrium. On average, the estimated marginal revenue product of labour (MRPL) exceeds wages by ~50% in typical labour markets.

Let’s start with two apparently unrelated observations:

(1) Firm size is crucial in modern economies. Intangible technologies offer major productivity gains but come with high sunk costs—often too high for small businesses.

Alright, I've got zero followers right now—let's see if this thread on my JMP can escape the depths of the internet.

TL;DR: Labour market power leads to large productivity losses.

Keep reading if you’re interested in misallocation, tech diffusion, and regional disparities (you should be!).