The objective of this paper is to investigate the cyclical behaviour of mark-ups, using a panel of Spanish manufacturing firms over the period 1990-1996. Margins are estimated from an Eulere quation derived from the firm's optimisation problem, which assumes that labour inputs are subject to adjustment costs. A number of results emerge from the estimations. First, we find positive and asymmetric adjustment costs for permanent labour inputs. Second, price-cost margins are markedly procyclical. Third, adjustment costs contribute to the cyclical movement of margins. Our estimates suggest that adjustment costs more than double the variability of average margins with respect to price-marginal costs margins. Finally, price-cost margins reveal some degree of heterogeneity across industries.