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asked ago in General Economics Questions by (280 points)
I always see stuff like this in monopsony papers:

"The average establishment charges a markdown of 1.53 — that is, a plant’s marginal revenue product of labor is on average 53 percent higher than the wage it pays its workers. To put these numbers in perspective, a markdown of 1.53 implies that a worker receives about 65 cents on the marginal dollar generated. Furthermore, we find that a large number of manufacturing plants exert labor market power. In fact, half of the manufacturing plants charge a markdown that is equal to or larger than 1.364 (73 cents on the dollar)."

I can't imagine all of these businesses are generating net operating profits of 26% to 35%.  A worker on an assembly line is part of a whole system of investment, administration, and operation, and so if a thing sells for $1 but the worker receives 65 cents, but the firm profits 10 cents, then the worker's wage is not marked down from their product of labor; rather the workers measured are not contributing the full marginal dollar.

Are all of the businesses out there running egrigious 30%-ish long-run profit margins?

1 Answer

+1 vote
answered ago by (2.7k points)
We can just divide costs of a firm between wages and expenditures that are directed outside the company to other companies in form of investment, purchase of raw materials or capital. This creates new wages in other companies as well as profits, so taking into account national data, the profit margin in the economy averages a 27% more or less. Some of them are above this mark and others are below.