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The Dynamics of Plant-Level Productivity in U.S. Manufacturing

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  • Arpad Abraham
  • Kirk White

Abstract

Using a unique database that covers the entire U.S. manufacturing sector from 1976 until 1999, we estimate plant-level total factor productivity for a large number of plants. We characterize time series properties of plant-level idiosyncratic shocks to productivity, taking into account aggregate manufacturing-sector shocks and industry-level shocks. Plant-level heterogeneity and shocks are a key determinant of the cross-sectional variations in output. We compare the persistence and volatility of the idiosyncratic plant-level shocks to those of aggregate productivity shocks estimated from aggregate data. We find that the persistence of plant level shocks is surprisingly low-we estimate an average autocorrelation of the plantspecific productivity shock of only 0.37 to 0.41 on an annual basis. Finally, we find that estimates of the persistence of productivity shocks from aggregate data have a large upward bias. Estimates of the persistence of productivity shocks in the same data aggregated to the industry level produce autocorrelation estimates ranging from 0.80 to 0.91 on an annual basis. The results are robust to the inclusion of various measures of lumpiness in investment and job flows, different weighting methods, and different measures of the plants’ capital stocks.

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File URL: ftp://ftp2.census.gov/ces/wp/2006/CES-WP-06-20.pdf
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 06-20.

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Length: 28 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:cen:wpaper:06-20

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Keywords: productivity; manufacturing; microdata;

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References

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  1. Ron S Jarmin & Javier Miranda, 2002. "The Longitudinal Business Database," Working Papers, Center for Economic Studies, U.S. Census Bureau 02-17, Center for Economic Studies, U.S. Census Bureau.
  2. Ricardo J. Caballero & Eduardo M.R.A. Engel & John Haltiwanger, 1995. "Aggregate Employment Dynamics: Building From Microeconomic Evidence," NBER Working Papers 5042, National Bureau of Economic Research, Inc.
  3. Sakellaris, Plutarchos, 2004. "Patterns of plant adjustment," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(2), pages 425-450, March.
  4. Storesletten, Kjetil & Telmer, Chris & Yaron, Amir, 2001. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3065, C.E.P.R. Discussion Papers.
  5. Douglas W Dwyer, 1996. "ARE FIXED EFFECTS FIXED? Persistence in Plant Level Productivity," Working Papers, Center for Economic Studies, U.S. Census Bureau 96-3, Center for Economic Studies, U.S. Census Bureau.
  6. Mark Doms & Eric J. Bartelsman, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September.
  7. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  8. Levinsohn, J. & Petrin, A., 1999. "When Industries Become More Productive, Do Firms?: Investigating Productivity Dynamics," Working Papers, Research Seminar in International Economics, University of Michigan 445, Research Seminar in International Economics, University of Michigan.
  9. Plutarchos Sakellaris, 2001. "Patterns of plant adjustment," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-05, Board of Governors of the Federal Reserve System (U.S.).
  10. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1263-97, November.
  11. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
  12. Laura Power, 1998. "The Missing Link: Technology, Investment, And Productivity," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 300-313, May.
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Citations

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Cited by:
  1. Šustek, Roman, 2011. "Plant-level nonconvex output adjustment and aggregate fluctuations," Journal of Monetary Economics, Elsevier, Elsevier, vol. 58(4), pages 400-414.
  2. Valentina Bosetti & Marco Maffezzoli, 2013. "Taxing Carbon under Market Incompleteness," Working Papers, Fondazione Eni Enrico Mattei 2013.72, Fondazione Eni Enrico Mattei.
  3. Costain, James & Jansen, Marcel, 2009. "Employment Fluctuations with Downward Wage Rigidity: The Role of Moral Hazard," IZA Discussion Papers 4344, Institute for the Study of Labor (IZA).
  4. Chad Syverson, 2010. "What Determines Productivity?," NBER Working Papers 15712, National Bureau of Economic Research, Inc.
  5. Yoonsoo Lee & Toshihiko Mukoyama, 2008. "Entry, exit and plant-level dynamics over the business cycle," Working Paper 0718, Federal Reserve Bank of Cleveland.
  6. Biewen, Martin & Weiser, Constantin, 2011. "A New Approach to Testing Marginal Productivity Theory," IZA Discussion Papers 6113, Institute for the Study of Labor (IZA).
  7. Lakshmi Balasubramanyan & Ramesh Mohan, 2010. "How well is productivity being priced?," Journal of Economics and Finance, Springer, Springer, vol. 34(4), pages 415-429, October.
  8. Emin Dinlersoz & Henry Hyatt & Sang Nguyen, 2011. "Wage Dynamics along the Life-Cycle of Manufacturing Plants," Working Papers, Center for Economic Studies, U.S. Census Bureau 11-24r, Center for Economic Studies, U.S. Census Bureau, revised Mar 2013.
  9. Rui Castro & Gian Luca Clementi & Yoonsoo Lee, 2011. "Cross-Sectoral Variation in The Volatility of Plant-Level Idiosyncratic Shocks," NBER Working Papers 17659, National Bureau of Economic Research, Inc.
  10. Allan Collard-Wexler, 2011. "Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry," Working Papers, Center for Economic Studies, U.S. Census Bureau 11-25, Center for Economic Studies, U.S. Census Bureau.
  11. Jon Steinsson & Emi Nakamura, 2007. "Monetary Non-Neutrality in a Multi-Sector Menu Cost Model," 2007 Meeting Papers, Society for Economic Dynamics 736, Society for Economic Dynamics.
  12. Katherine A. Smith, 2011. "Can Financing Constraints Explain The Asset Pricing Puzzles In Production Economies?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 739-765, 08.

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