The Cyclicality of Mark-Ups and Profit Margins for the United Kingdom: Some New Evidence

44 Pages Posted: 8 Oct 2008

See all articles by Clare Macallan

Clare Macallan

Bank of England - Monetary Assessment and Strategy Division

Stephen Millard

Bank of England

Miles Parker

Reserve Bank of New Zealand

Date Written: August 1, 2008

Abstract

In this paper, we assess the cyclicality of mark-ups and profit margins within the United Kingdom, at both the aggregate and industry level. We find that the private sector labour share moves countercyclically, suggesting that the aggregate mark-up moves procyclically. This result survives when we consider more sophisticated measures of the mark-up. And this result is also supported by industry-level data. We find that the aggregate market sector profit share moves procyclically and that the cyclical behaviour of profit margins is largely homogenous across industries. Nevertheless, there is some evidence that margins moved against the cycle in the late 1990s, starting to fall in 1997, whereas GDP growth did not peak until 2000. In tandem with these cyclical movements, we also find that the market sector profit share has trended upwards since 1970, in contrast to the aggregate mark-up, which fell over the same period.

Keywords: Mark-ups, profit margins

JEL Classification: E31, L11

Suggested Citation

Macallan, Clare and Millard, Stephen and Parker, Miles Ian, The Cyclicality of Mark-Ups and Profit Margins for the United Kingdom: Some New Evidence (August 1, 2008). Bank of England Working Paper No. 351. Available at SSRN: https://ssrn.com/abstract=1280900 or http://dx.doi.org/10.2139/ssrn.1280900

Clare Macallan

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

Stephen Millard (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Miles Ian Parker

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington
New Zealand

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