Markups and profits skyrocket

Mike Konczal and Niko Lusiani at the Roosevelt Institute take a closer quantitative look at the sources of inflation the last two years:

This research brief is the first to explore the size and distribution of markups (essentially the difference between sales and marginal costs) and profit margins across 3,698 firms operating in the US in 2021, reproducing and updating the analysis of Jan De Loecker, Jan Eeckhout, and Gabriel Unger’s The Rise of Market Power and the Macroeconomic Implications. Konczal and Lusiani’s analysis is evidence that the recent sudden high jump in markups fits all three of the main explanatory stories of inflation being debated—namely those related to changes in demand, supply, and market power. Notably, they find that…
The answers policymakers and the public have to this question condition how we respond as a nation to the challenge of rising prices, with lasting economic consequences for households across the country. inflation was significantly higher than forecasters predicted throughout 2021 and has remained so in 2022.
While the idea that we are facing the threat of a wage-price spiral is becoming conventional wisdom, this brief and other research finds that changes to labor and worker compensation are not driving factors in recent markups.