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We show that existing 鈥榩roduction approaches鈥� to markdown estimation
do not separately identify factor price markdowns from
factor-augmenting productivity levels. We propose a method to
overcome this challenge and apply it to study the effects of ownership
liberalization in Chinese nonferrous metal industries. We find
that private firms have much higher labor-augmenting productivity
levels than state-owned enterprises (SOEs). However, we also find
that private firms exert higher monopsony power over their workers
than SOEs, although this only holds for domestically-owned
firms. This suggests that privatization policies imply a trade-off
between increased productivity and monopsony power.
