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

A cross-sectional analysis was performed on the NBER Manufacturing Producti vity database (450 four-digit industries) to investigate the behaviour of t otal 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 cyclicalit y. Results indicate that PROD is procyclical, more so in contractions, and that market power is associated with an even greater increase in PROD durin g expansions; this suggests that variable input utilization (e.g. labour ho arding) is responsible for productivity growth fluctuations, and that firms in less competitive industries have more slack and can thus use inputs mor e intensively during booms. PMC decreases in both expansions and contractio ns, and the contractionary decrease is smaller in monopolistic industries; this can be attributed to capacity constraints in expansions and price cutt ing in contractions, with monopolistic industries less likely to engage in price competition.