Job Market Paper
Industrial Structure and the Transmission of Granular Cost Shocks [Draft on request]
Abstract
We examine how firm-level cost shocks are transmitted into industry producer prices in the United States. Using Compustat data, NAICS3 producer price indexes, and input-output linkages, we construct granular industry cost shocks and upstream exposure measures. Bayesian hierarchical local projections show that pass-through is positive and persistent, but highly uneven across sectors. Price transmission is concentrated in upstream and more concentrated industries, where network position and pricing power make cost shocks more likely to propagate into producer prices. At the firm level, markups compress on impact following cost shocks, but markup defense is stronger during the pandemic and in more concentrated industries, and adverse shocks have larger and more persistent effects than favorable ones. Aggregating the estimated industry-level transmission mechanism with sales weights, we show that the heterogeneous pass-through structure accounts for a meaningful share of covered-industry inflation, particularly during episodes dominated by large upstream cost disturbances.
Working Papers
Inflation, Pricing, and Industrial Structure
Granularity, Networks, and Aggregate Price Volatility [PDF]
Abstract
Idiosyncratic firm-level cost shocks affect aggregate price volatility when they survive aggregation within industries and propagate through the production network. We show that when firm shocks are demeaned within industries and aggregated with lagged sales weights, the relevant concentration term for the granular component includes a finite-firm correction to the Herfindahl. Under linear network propagation and standard independence assumptions, the variance of the granular-network component of inflation is proportional to a statistic combining within-industry concentration and network influence. Using Compustat firm data, BLS producer price indexes, and BEA input-output tables, we find that this component is positively and significantly related to realized producer-price inflation, that the correction removes about 30 percent of the per-industry Herfindahl term and 15 percent of the aggregate statistic, and that granular-network volatility concentrates in a handful of industries.
Profitability and Accumulation
The Falling Rate of Profit Hypothesis: Evidence from China and the United States [PDF]
Abstract
Marx’s law of the tendency of the rate of profit to fall holds that a rising organic composition of capital depresses the general rate of profit. Although the law has been debated extensively, most empirical studies measure profit rates and their trends, and few examine the causal relationship between the organic composition of capital and the rate of profit directly. This paper studies that relationship in two economies with different institutional structures. For the U.S. nonfinancial corporate sector, we estimate vector autoregressive and vector error-correction models on annual data for 1929–2022. For China, we estimate dynamic panel models with difference and system GMM on a balanced panel of 21,987 industrial enterprises for 1999–2007. In the United States, the rate of profit and the organic composition of capital are cointegrated and negatively related in the long run. Deviations from this relationship, however, are corrected through the organic composition of capital, while the rate of profit is weakly exogenous. This implies that long-run causation runs from the rate of profit to the organic composition of capital, the opposite of the direction the hypothesis posits, and Granger-causality tests in first differences indicate short-run causation in both directions. In China, both the rate of profit and the composition of capital rise over the sample period, and our preferred GMM estimates show no significant negative long-run effect of the composition of capital on profitability. We discuss the limitations of the present specifications, including the definitional link between the U.S. measures of the rate of profit and the organic composition of capital and the use of a bivariate system, and outline how future work can address them.
Measuring Marxian Categories in the U.S. Economy: Profitability, Distribution, and Capital Composition [PDF]
Abstract
Empirical work on the rate of profit depends on how theoretical categories are mapped into national accounts. Conventional accounts treat every marketed activity as production, whereas the Marxian framework distinguishes activities that produce new value from those that circulate or appropriate it. Building on the framework of Shaikh and Tonak (1994), we classify every industry in the U.S. input-output accounts into production, semi-production, business, financial, and non-production sectors, justify the classification of borderline industries, and construct the Marxian net product, surplus value, profit, the rate of surplus value, the organic composition of capital, and four alternative measures of the rate of profit for 2017–2022. Three findings stand out. First, the distinction between production and other activities is quantitatively large: only 56–57 percent of the reconstructed net product is recorded in production sectors, while about 40 percent is recorded in business sectors that realize output. Second, the level of the rate of profit depends heavily on the treatment of unproductive labor and capital, ranging from 9 to 53 percent across measures, although all measures move together over time. Third, an exact decomposition shows that year-to-year movements in the Marxian rate of profit are driven by the rate of surplus value, while the organic composition of capital is stable at about 2.6–2.7, and that about three-fifths of surplus value is absorbed by the wages of unproductive labor. The estimated rate of surplus value is lower than in studies that count only production workers’ wages as variable capital, and it is sensitive in level, but not in its movements, to the classification of borderline industries.
Maximum-Entropy Models of Profit-Rate Distributions: Evidence from Chinese Industrial Firms [PDF]
Abstract
Classical political economy describes competition as a process that moves capital toward sectors with higher profits and thereby tends to equalize profit rates. A statistical-equilibrium approach draws the implication that competition produces not a single uniform rate of profit but a stable distribution of profit rates across firms. This paper studies the firm-level distribution of profit rates in China using the Chinese Industrial Enterprises Database for 1996–2007. The distribution is sharply peaked and asymmetric, and a substantial share of firms, ranging from about one-half in 1996–1997 to about one-tenth in 2007, report negative profit rates. We compare four maximum-entropy models of the profit-rate distribution: the exponential, Gamma, asymmetric Laplace, and quantal response statistical equilibrium (QRSE) distributions. The asymmetric Laplace distribution, which accommodates both negative and positive profit rates, fits the data closely in every year, and the QRSE model captures its overall shape. The estimated parameters show that the mean profit rate rises over the period, while the lower tail of the distribution contracts and the upper tail lengthens. We discuss what these changes may reveal about competition and firm exit, and outline how a formal model comparison can be carried out in future work.