Larger increases in markups are not associated with larger declines in dynamism at the industry level

See Rising Markups and Declining Business Dynamism: Evidence From the Industry Cross Section by Brian C. Albrecht and Ryan A. Decker¹. Excerpt:

"In recent decades, various measures of "business dynamism"—such as new business entry rates and gross job or worker flows—have seen significant declines in the U.S. (figure 1, right panel).² Over a similar time frame, there is evidence that an important measure of market power—the average markup—has risen significantly (figure 1, left panel; De Loecker, Eeckhout, and Unger 2020). A natural question is whether these patterns are related."

"While the aggregate time series evidence suggests a relationship between the rise in markups and the decline in dynamism, in this note we explore cross-sectional evidence, with a focus on patterns of markup growth and dynamism decline across industries. In contrast to the aggregate patterns, looking across industries we do not find a negative correlation between changes in dynamism and changes in markups over the 1980-2016 period; and the correlation may even be positive. In other words: larger increases in markups are not associated with larger declines in dynamism at the industry level. We preview the basic pattern using broad sectors on figure 2, which plots changes in firm entry employment rates against changes in average markups on the left panel, with log changes in the right panel. Industries experiencing larger markup growth actually saw less of a decline in dynamism; we will show below that this result holds at a narrower level of industry detail as well.

In the remainder of this note, we explore these cross-sectional patterns in more detail. We then set our results in the context of the broader literature on markups and on declining dynamism then speculate on potential explanations."