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Do Input Quality and Structural Productivity Estimates Drive Measured Differences in Firm Productivity?

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Author Info
Fox, Jeremy T. () (University of Chicago)
Smeets, Valérie () (Department of Economics, Aarhus School of Business)

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Abstract

Firms in the same industry can differ in measured total factor productivity (TFP) by multiples of 3. Griliches

(1957) suggests one explanation: the quality of inputs differs across firms. Labor inputs are traditionally

measured only as the number of workers. We investigate whether adjusting for the quality of labor inputs

substantially decreases measured TFP dispersion. We add labor market history variables such as experience

and firm and industry tenure, as well as general human capital measures such as schooling and sex. We also

investigate whether an innovative structural estimator for productivity due to Olley and Pakes (1996) substantially

decreases measured residual TFP. Combining labor quality and structural estimates of productivity, the

one standard deviation difference in residual TFPs in manufacturing drops from 0.70 to 0.67 multiples. Neither

the structural productivity measure nor detailed input quality measures explain the very large measured

residual TFP dispersion, despite statistically precise coefficient estimates

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Publisher Info
Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 07-2.

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Length: 40 pages
Date of creation: 01 Feb 2007
Date of revision:
Handle: RePEc:hhs:aareco:2007_002

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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
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Related research
Keywords: production function estimation total factor productivity input quality structural estimates of productivity

Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. G. Steven Olley & Ariel Pakes, 1992. "The Dynamics of Productivity in the Telecommunications Equipment Industry," NBER Working Papers 3977, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," Working Papers 05-11, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
    Other versions:
  3. Eric J. Bartelsman & Mark Doms, 2000. "Understanding Productivity: Lessons from Longitudinal Microdata," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 569-594, September. [Downloadable!] (restricted)
    Other versions:
  4. Judith K. Hellerstein & David Neumark, 2004. "Production Function and Wage Equation Estimation with Heterogeneous Labor: Evidence from a New Matched Employer-Employee Data Set," NBER Working Papers 10325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November. [Downloadable!] (restricted)
  6. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEP Discussion Papers dp0716, Centre for Economic Performance, LSE. [Downloadable!]
    Other versions:
  7. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 317-341, 04. [Downloadable!] (restricted)
    Other versions:
  8. Johannes Van Biesebroeck, 2004. "Robustness of Productivity Estimates," NBER Working Papers 10303, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Johannes Van Biesebroeck, 2007. "Wages Equal Productivity. Fact or Fiction?," Working Papers tecipa-294, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
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