PEGFA Seminar Series 2024/25: Guschanski & Onaran

31st Oct 2024 5pm - 6:30pm

Greenwich Campus

QA038 & Online

The Institute of Political Economy, Governance, Finance and Accountability (PEGFA) invites you to its Research Seminar Series 2024/25.

Our first Research Seminar will take place on 31st October 2024 in QA038, featuring PEGFA speaker Dr Alexander Guschanski.

Dr Guschanski will be discussing 'UK Mark-ups and Profit Margins during the pandemic and its aftermath', co-authored by Professor Özlem Onaran.

Please see the abstract below:

'Inflation has surged to levels not seen since the 1970s while real wages remain below pre-pandemic levels in many sectors. Despite debates about ‘profit-led’ inflation and profiteering, what happened to firm markups and profitability since the Covid-19 pandemic remains under-researched.

This paper provides a comprehensive analysis of markups and profit margins for the pandemic period and its aftermath in the UK using i) unconsolidated balance sheets of non-financial corporations, ii) data for both listed and unlisted firms, iii) the period covering 2014-2022.

We find that the markup increases by 14.7% in nine years between 2014 and 2022 in the UK. This implies an acceleration of the rise in markups in recent years, despite a pandemic and major economic, ecological and geo-political crises. Importantly, the markup increase is largely driven by rising markups within UK companies, especially since 2020. In this regard, the UK is different from the US where markup growth was strongly driven by a reallocation of output towards high-markup firms. Throughout this period, the markup distribution of firms in the UK became more polarised. Increasingly more firms are at risk of financial difficulties due to low profit margins while at the same time more firms are charging historically extraordinarily high markups and reap high profits. This contributes to bankruptcy risk and economic instability, while exacerbating pricing power for some companies.

Importantly, our analysis shows that markups, once increased, tend to persist at a higher level. The rise in markups in 2020 was largely an attempt to cover extraordinary costs or losses that arose in the first year of the pandemic. Firms, on average, were not successful in fully passing on these costs, as indicated by a strong decline in the 2020 profit margin. However, by 2022, markups and profit margins have both increased beyond their historical peak, and indicative evidence for 2023 suggests that they might have risen even further since. This indicates that preventing markup increases during economy-wide cost shocks like in 2020 should be a priority for policymakers. We conclude with policy suggestions for controlling pricing power and cushioning distributional shocks triggered by economic crises based on identifying systemically significant prices and industries and managing future price shocks through shock absorbers such as price gauging laws or price controls, buffer stocks, financial support for small businesses and windfall taxes coupled with transfers to low-income households.'

The MS Teams meeting can be accessed here.

We look forward to seeing you there!

The full schedule for the 2024-24 PEGFA Seminar Series can be found here.

BOOKING REQUIRED

Further details