Markups in US food manufacturing accounting for non-neutral productivity

Abstract

We examine the evolution of productivity and markups in US food and beverage manufacturing from 1959 through 2018. We account for non-Hicks-neutral (labour-augmenting) productivity changes and compare markups with those in general manufacturing using the same dataset and model. We also compare our results with those of the increasingly popular De Loecker and Warzynski (2012, American Economic Review, 102, 2437) method, which does not account for non-Hicks-neutral productivity growth. Empirical results show that productivity growth in the food and beverage sector has been relatively slow and driven with equal intensity by Hicks-neutral and labour-augmenting productivity gains. General manufacturing shows higher productivity growth that is mostly labour-augmenting, with markups comparable to those of food manufacturing. We find that accounting for labour-augmenting productivity produces more moderate markup estimates than the De Loecker and Warzynski (2012) method. We also find no evidence of markups rising in either food manufacturing or general manufacturing in the last 20 years, in contrast to much of the recent economic literature.