Abstract :
Recentadvancesinmeasuringcyclicalchangesintheincomedistributionraisenew
questions:Howmightthesedistributionalchangesaffectthebusinesscycleitself?We
show howcounter-cyclicalincomedispersioncangeneratecounter-cyclicalmarkupsin
the goodsmarket,withoutanypreferenceshocksorprice-settingfrictions.Inrecessions,
idiosyncraticlaborproductivityshocksraiseincomedispersion,lowertheprice
elasticityofdemand,andincreaseimperfectlycompetitivefirms’optimalmarkups.
The calibratedmodelexplainsnotonlymanycyclicalfeaturesofmarkups,butalso
cyclicalandlong-runpatternsofstandardbusinesscycleaggregates
