Published on 29 January 2024
Share Tweet  Share

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

By looking at changes in markups, crucial for productivity understanding, this study suggests that structural shifts in manufacturing dynamics may significantly contribute to the UK's productivity challenges.


UK manufacturing firms have experienced sharp declines in productivity since 2008, whether measured by real revenue per worker or estimated total factor productivity. Less is known about trends in firms’ markups, which is important for understanding productivity dynamics. The estimation of markups is challenging without direct access to price and cost data, but they can be inferred using microdata on firms’ revenues and input use. In this paper we use two approaches to infer the evolution of aggregate markups for UK manufacturing firms. Both use estimates of the elasticity of substitution within industry subsectors.

Our principal approach involves assumptions about the structure of competition between firms at various levels of industry aggregation, while the second tests the robustness using the influential Hall/DeLoecker approach to infer the markup based on variable input cost shares. Both approaches show large declines in estimated UK manufacturing markups since the financial crisis, estimating a decrease in industry-level gross markups of approximately eight percentage points between 2008 and 2019. There are significant contributions from both within-firm declines and declines due to reallocation. As markup declines are associated with an adverse shift in the distribution of firm-level manufacturing productivity, our results indicate that structural dynamics in manufacturing industry likely play a large part in the UK’s productivity puzzle.

Keywords: Markups, monopolistic competition, manufacturing

JEL: D22, D24, D42, D43, E24, O47

This work contains statistical data from ONS which is Crown Copyright. 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. This work uses research datasets which may not exactly reproduce National Statistics aggregates.


Diane Coyle 2018

Professor Diane Coyle

Bennett Professor of Public Policy and Co-Director of the Bennett Institute for Public Policy

Professor Coyle co-directs the Bennett Institute with Professor Kenny. She is heading research under the progress and productivity themes. Biography Professor Dame Diane Coyle is the Bennett Professor of Public Policy at...

Professor John McHale

John McHale is Established Professor of Economics and Executive Dean of the College of Business, Public Policy, and Law at the National University of Ireland, Galway.  He also previously served as Director of...

Ioannis Bournakis

Dr Ioannis Bournakis is an Associate Professor in Economics at SKEMA Business School in Lille, France. He holds a Ph.D in Economics from the University of Kent, and an MA...

Dr Jen-Chung Mei

Affiliated Researcher

Dr Jen-Chung Mei is a Lecturer in Economics at Westminster Business School, and a member of the Productivity Institute. He was a Postdoc Research Associate at the Bennett Institute for Public...

Register your interest

Let us know if you’d be interested in reading more about this and related research by submitting your details below.

By submitting this form, you will be supplying us with your personal information so that we may contact you.

Back to Top