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THE PRICE–MARGINAL COST MARKUP AND ITS DETERMINANTS IN U.S. MANUFACTURING

Published online by Cambridge University Press:  03 January 2013

Sandeep Mazumder
Sandeep Mazumder*
Affiliation:
Wake Forest University
*
Address correspondence to: Sandeep Mazumder, Department of Economics, Carswell Hall, Box 7505, Wake Forest University, Winston-Salem, NC 27109, USA; e-mail: [email protected].
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Abstract

This paper estimates the price–marginal cost markup for U.S. manufacturing using a new methodology. Most existing techniques of estimating the markup are a variant on the Hall (1988) framework that involves manipulating 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.

Keywords

MarkupMarginal Cost
Type
Articles
Information
Macroeconomic Dynamics , Volume 18 , Issue 4 , June 2014 , pp. 783 - 811
Copyright
Copyright © Cambridge University Press 2012 

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