WORKING PAPER - Recent trends in firm-level markups in the United Kingdom 2008-2019

The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. [...] (2021) and Sampi, Jooste, and Vostroknutova (2021) point out that the methodology is sensitive to: (1) the functional form of the production function; (2) the omission of demand shifters; (3) the absence of price information; (4) the violation of the Markov process for productivity; and (5) misspecification when marginal costs are excluded in the estimation process. [...] Crucially, given that the markup depends only on the elasticity of substitution between products in an industry and the revenue shares, we can calculate the distribution of markups using our estimate of the relevant industry elasticity of substitution and the revenue shares that are available in our data. [...] We term the sum of the second two terms the reallocation effect and of the final two terms the entry/exit effect. [...] Finally, setting the relevant level of the index equal to 1 in the first year of the sample, we use the relevant calculated weighted growth rates to infer the evolution of the level of the index over the sample.