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The Price-Marginal Cost Markup and its Determinants in U.S. Manufacturing

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  • Mazumder, Sandeep

Abstract

This paper estimates the price-marginal cost markup for US manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on Hall's (1988) framework involving the manipulation of the Solow Residual. However this paper argues that this notion is based on the unreasonable assumption that labor can be costlessly adjusted at a fixed wage rate. By relaxing this assumption, we are able to derive a generalized markup index, which when estimated using manufacturing data is highly countercyclical and decreasing in trend since the 1960s. When we then seek to explain what causes the manufacturing markup to behave in this way, the most important determinant is the share of imported goods in the industry. Thus, increasing foreign competition in manufacturing has led to a decline in the industry's markup over time.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17260.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:17260

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Keywords: Markup; Marginal Cost;

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Cited by:
  1. Sandeep Mazumder, 2011. "The Long-Run Relationship Between Inflation and the Markup in the U.S," Economics Bulletin, AccessEcon, vol. 31(1), pages 473-484.

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