Factor shares, the price markup, and the elasticity of substitution between capital and labor

► Aggregate price mark-up reflects degree of imperfect competition in product market. ► Estimated elasticity of substitution above 1 in Spain, below 1 in the US. ► Labor income share depends on elasticity of substitution and price markup. ► Price markup accounts for 63% of the labor income share variation in Spain and 57% in the US. ► The elasticity of substitution explains, respectively, 27% and 39% of its variation.