The same question arises whenever another company reports record-high margins. Did it earn those profits by outmanoeuvring its rivals, or was it simply lucky enough to remain the only strong player on an increasingly empty board? A study titled “Market Power, Inequality, and Economic Growth,” by economists Rafael Guttmann of Alberto Hurtado University in Chile and David Rahman of the University of Minnesota in the United States, offers a concrete, testable answer. It does little to support the familiar story of brilliant executives.
The authors built a general equilibrium model calibrated against 60 years of US data, from 1963 to 2023. Their aim was to explain three developments usually discussed in isolation, as though they had separate causes: rising corporate markups, slowing labour productivity growth and widening income inequality among the wealthiest households. The study reaches a conclusion that is both simple and uncomfortable. All three trends are driven largely by the same unremarkable variable – slower growth in the working-age population.
The headline figures speak for themselves. Annual growth in the US working-age population fell from 1.38% in 1963-1993 to 0.83% in 1994-2023. That shift alone explains 78% of the decline in the growth rate of aggregate output per working-age person and 88% of the fall in labour’s share of national income. Depending on which segment of the firm distribution is examined, the demographic channel accounts for 22-35% of the increase in corporate markups. It also explains 34-38% of the rise in inequality, as measured by both the top 1% income share and the Gini coefficient.
But divide those 60 years into four 15-year periods rather than two large blocks, and the picture becomes more troubling – and more revealing. Between 1963 and 1978, the working-age population grew by 1.75% a year. From 1978 to 1993, the rate slowed to 1.01%. It then staged an unexpected rebound to 1.24% between 1993 and 2008, temporarily obscuring the problem ahead. From 2008 to 2023, however, growth collapsed to 0.42%, well below even the 0.83% average the authors use to calibrate the later period. In other words, the demographic brake has been applied much harder over the past 15 years than the average for the full later period suggests. If anything, the true contribution of demographics to today’s markups and inequality is probably understated, not exaggerated.
This provides a direct answer to the question of where high profits come from. The model offers a diagnostic test that distinguishes between two situations that may look identical in a quarterly report. If wider margins were a story of efficiency, the gains would be concentrated among market leaders and accompanied by faster productivity growth across the industry. Innovators, after all, should be pulling further ahead. The actual data show the opposite. The median corporate markup rose by about 12% between the early and late calibration periods. The biggest increases were not at the very top of the distribution, but in the middle and upper-middle, with the 75th percentile gaining around 20%. At the same time, productivity growth slowed across the economy. A broad-based rise in margins alongside weakening productivity is not the signature of competition based on quality. It is the signature of weaker competitive pressure itself.
The source of the markup figures deserves a closer look, because the authors deliberately challenge estimates that have become widely accepted in academic circles. One frequently cited, though equally frequently disputed, study reported a sharp increase in corporate market power several years ago. Since then, several economists have pointed to methodological weaknesses in how firms’ production functions were measured. The authors of the present study recalculated markups from scratch using the financial statements of US-listed companies from 1962 to 2024. Their dataset contains 264,142 firm-year observations grouped into 1,369 industry-year cells. They estimated the production function using an instrumental-variables approach, taking lagged cost of goods sold as an instrument for current values to avoid a common source of estimation bias. The mean output elasticity with respect to costs was 0.831, while the median was 0.836. The resulting increase in markups was considerably smaller than the headline-grabbing earlier estimates. Yet even this more conservative reassessment confirms the trend and makes the study’s conclusions more robust.
The authors describe the mechanism linking the number of competitors to economic growth as symbiotic competition. It is perhaps the study’s most practical insight. In industries with several competing firms, laggards gradually absorb technologies and ideas from the leaders through the natural spillover of knowledge. Employees move between companies, product features are copied and rivals simply watch and learn from one another. Mathematically, the effect means that an industry’s average productivity growth rises with the number of firms, but with clearly diminishing returns and an eventual ceiling. An industry with two competitors learns far more slowly than one with ten. The difference between ten and twenty, by contrast, is barely noticeable. The practical implication is clear: losing even a few players from a moderately concentrated industry, where competitors are already scarce, costs the economy far more than the same number disappearing from an overcrowded market.
The model also offers a less obvious insight into who can enter a market in the first place. In the authors’ framework, the rate at which new firms are created is proportional to the size of the entrepreneurial population but inversely related to the economy’s overall level of development and productivity. The further an economy advances in aggregate productivity, the harder it becomes for a newcomer to enter and challenge established players. It is a kind of natural maturity tax paid by every developed country, regardless of its specific industrial policies. This produces a mirror-image advantage for economies whose populations are growing rather than ageing and whose initial productivity levels are not yet especially high. They benefit twice: from a larger flow of new entrepreneurs and from a lower natural barrier to entry. But the authors add an important caveat. Demographic growth guarantees nothing by itself. If the administrative and regulatory barriers to starting and running a business remain high, population growth will simply fail to translate into new firms. The potential advantage will remain on paper.
The authors also examine the obvious objection from large corporations: why not create competition internally by splitting a business into several divisions and making them compete with one another? Calculations in related work by the same authors suggest that a monopolist could theoretically reproduce some of the benefits of such rivalry. But doing so becomes worthwhile only at an extremely low discount rate, meaning the company must be willing to sacrifice current profits for gains many years into the future. Very few businesses have that kind of patience. In practice, internal restructuring cannot replace genuine external rivals. An organisational chart cannot fool the market.
To test whether demographics are truly a primary force rather than a convenient coincidence, the authors also ran the experiment in reverse. They held demographics at today’s low level but changed the parameters governing the cost of entry for new firms, incumbents’ willingness to leave the market and other institutional features of competition. On its own, this purely institutional scenario explains almost the entire observed shift in the distribution of markups, along with slower growth, reduced business dynamism, a higher rate of firm exit and a falling labour share of income. For inequality, however, the institutional and demographic channels together explain less than 40% of the increase. The authors attribute the remainder neither to demographics nor to entry barriers, but to a shift in the distribution of workers’ skills – in other words, technological change that rewards advanced skills more generously. This distinction matters. Demographics explain most of the slowdown in growth and the decline in labour’s share, but inequality within the very highest income bracket is also sustained by a technological shift with no direct demographic cause.
For Kazakhstan, none of this is an abstract hypothesis. The country’s population grew by 1.18% in 2025, declining for a third consecutive year from 1.25% a year earlier. By the historical standards of developed economies, however, that remains a healthy pace, while people aged 10 to 24 account for 22.6% of the population. The number of registered legal entities rose from 536,241 at the start of 2025 to 552,008 by October, while the number of individual entrepreneurs exceeded 1.89 million, of whom 1.8 million were actively operating. Kazakhstan’s economy also remains further from the technological frontier than the US economy. That means the natural “maturity tax” suppressing new entrants in developed countries is still less burdensome here. Kazakhstan’s demographic and structural window is wider than that of most Western economies. But the study’s logic suggests that this opportunity will translate into real competition and faster productivity growth only if the administrative and regulatory burden on new businesses continues to ease, rather than gradually catching up and erasing an advantage the young economy currently enjoys.
The model’s account of how inequality itself emerges also deserves attention, because it offers an unusual perspective on the perennial question of why wealth becomes concentrated among a narrow elite. In the authors’ calculations, only about 15% of households become entrepreneurs. This is not due to luck or connections, but to a willingness to bear uninsured risk. Entrepreneurs in the model are risk-neutral: they knowingly give up the guaranteed income of salaried employment for the chance to earn much more or lose almost everything. This readiness to shoulder risk alone, without sharing it with anyone else, produces the extreme concentration of wealth at the very top of the distribution. If entrepreneurs were risk-averse and could freely sell their future companies at fair value on an open market, inequality among them would simply disappear. The extraordinary wealth of a small circle of business founders therefore appears less a product of policy failure or individual greed than the mathematical consequence of how few people are prepared to play such a risky entrepreneurial game.
The authors’ practical conclusion is unusually encouraging for an economics paper. If the same demographic and institutional channel weakens competition, slows productivity and widens inequality, then a single remedy could address much of all three problems. Policies that lower the cost of starting a business and encourage the arrival of new entrepreneurs – whether through simpler registration, start-up capital subsidies or the removal of unnecessary licensing barriers – can restore competitive pressure, accelerate productivity growth through the same knowledge spillovers and narrow the gap between the top 1% and everyone else. The authors also point to a longer-term lever: fertility and migration policy, which determines how many new entrepreneurs will emerge 15 or 20 years from now. This is a rare case in which antitrust policy, migration policy and efforts to reduce inequality all point in the same direction instead of competing for policymakers’ attention.
To return to the question with which we began, high corporate profits prove nothing by themselves – neither talent nor wrongdoing. What matters is not the size of the margin, but what is happening around it. Is the number of viable competitors in the industry rising or falling? Is productivity accelerating alongside profits, or falling behind? Guttmann and Rahman’s study makes a compelling case that, over the past 30 years, the US economy has tilted towards the second explanation. The culprit was not corporate greed, but simple demographic arithmetic – and over the past 15 years, its effects have only intensified.
Lina Yegelkyzy, EconomyKZ Research Group, exclusively for EconomyKZ.org
