Returns to Scale in U.S. Production, Redux
We estimate constant returns or slightly decreasing returns at the industry level in the private U.S. economy over the past 30 years, using two separate industry datasets. An intuitive identity linking returns to scale, the markup, and the profit rate, gives an implied markup of approximately12 percent, smaller than the estimates in the recent literature ranging from 15 – 40 percent. Put differently, given our estimated profit rate, large markups imply strongly increasing returns, which are not evident in the aggregate data. These findings suggest that approximately constant returns to scale in the U.S. economy are consistent with a relatively small aggregate markup in the post-1990 period.
|Keywords||Returns to scale, profit rates, markups|
|JEL||Capital; Investment (including Inventories); Capacity (jel E22), Business Fluctuations; Cycles (jel E32)|
|Publisher||Department of Economics|
|Series||Carleton Economics Working Papers (CEWP)|
Ahmad, Mumtaz, Fernald, John, & Khan, H.U. (2019). Returns to Scale in U.S. Production, Redux (No. CEP 19-07). Carleton Economics Working Papers (CEWP). Department of Economics.