Markup cyclicality and input factor adjustments

Abstract

This paper investigates the existence of markups and their cyclical behaviour at industry sector level. Markups are given as a price-cost relation that is estimated from a dynamic, structural model of the firm. The firms face costly adjustment of labour and potential financial constraints. The model is tested on a panel of firm- and plant-level data from Norwegian manufacturing industries. The results indicate a frequent presence of pro-cyclical markups. Labour adjustment costs are small and negligible. The results are related to the role played by unions in a setting with high union density.