Cyclical behaviour of productivity growth and price-cost margins: asymmetry and market power effects

Daniel Ryan

Applied Economics Letters, 2000, vol. 7, issue 5, 297-300

Abstract: A cross-sectional analysis was performed on the NBER Manufacturing Productivity database (450 four-digit industries) to investigate the behaviour of total factor productivity growth rates (PROD) and price-marginal cost ratios (PMC) in US manufacturing industries. This analysis allows for asymmetric behaviour and determines the effects of imperfect competition on cyclicality. Results indicate that PROD is procyclical, more so in contractions, and that market power is associated with an even greater increase in PROD during expansions; this suggests that variable input utilization (e.g. labour hoarding) is responsible for productivity growth fluctuations, and that firms in less competitive industries have more slack and can thus use inputs more intensively during booms. PMC decreases in both expansions and contractions, and the contractionary decrease is smaller in monopolistic industries; this can be attributed to capacity constraints in expansions and price cutting in contractions, with monopolistic industries less likely to engage in price competition.

Date: 2000
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DOI: 10.1080/135048500351429

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