Econometrica: Apr, 1968, Volume 36, Issue 2

An Industry Study of Corporate Profits

https://doi.org/0012-9682(196804)36:2<343:AISOCP>2.0.CO;2-E
p. 343-364

Michael K. Evans

A corporate profits function is first developed in which gross profits depend positively on unlagged current dollar sales and capacity utilization rates and negatively on lagged sales. This function is tested for all two-digit manufacturing industries. It is found that the estimates differ substantially but similar results can be grouped into primarily competitive and primarily oligopolistic industries. Further testing with unit labor costs as an additional independent variable shows that competitive industries pass on increased labor costs in the form of higher prices much more readily than do oligopolistic industries. Finally, an aggregate econometric model is used to show that an overall increase in unit labor costs is reflected almost entirely in higher prices and decreases corporate profits very little.