Abstract

How are imperfections in different input markets related? I show how to estimate the wedge between an input’s price and its marginal revenue product using financial statements without requiring any input market to be perfectly competitive, and apply this approach to Dutch manufacturing. Firms mark down intermediate input prices relative to their marginal revenue product, while both wage markups and wage markdowns are common in labor markets. A model where firms face upward sloping supply curves in both input markets, and collective bargaining determines wages, can rationalize these findings, but not a model that only allows for imperfections in a single input market. In line with this rent-sharing framework, I show that as the Euro appreciates, markdowns and rents in the intermediate input market of firms that import intermediates from China increase, and workers see their wages increase, even though labor does not become more revenue productive on average or on the margin.