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Productivity Dispersion and Input Prices: The Case of Electricity

  • Steven Davis
  • Cheryl Grim
  • John Haltiwanger

We exploit a rich new database on Prices and Quantities of Electricity in Manufacturing (PQEM) to study electricity productivity in the U.S. manufacturing sector. The database contains nearly 2 million customer-level observations (i.e., manufacturing plants) from 1963 to 2000. It allows us to construct plant-level measures of price paid per kWh, output per kWh, output per dollar spent on electric power and labor productivity. Using this database, we first document tremendous dispersion among U.S. manufacturing plants in electricity productivity measures and a strong negative relationship between price per kWh and output per kWh hour within narrowly defined industries. Using an IV strategy to isolate exogenous price variation, we estimate that the average elasticity of output per kWh with respect to the price of electricity is about 0.6 during the period from 1985 to 2000. We also develop evidence that this price-physical efficiency tradeoff is stronger for industries with bigger electricity cost shares. Finally, we develop evidence that stronger competitive pressures in the output market lead to less dispersion among manufacturing plants in price per kWh and in electricity productivity measures. The strength of competition effects on dispersion is similar for electricity productivity and labor productivity.

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File URL: ftp://ftp2.census.gov/ces/wp/2008/CES-WP-08-33.pdf
File Function: First version, 2008
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Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 08-33.

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Length: 41 pages
Date of creation: Sep 2008
Date of revision:
Handle: RePEc:cen:wpaper:08-33
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  1. Nick Bloom & John Van Reenen, 2006. "Measuring and explaining management practices across firms and countries," LSE Research Online Documents on Economics 733, London School of Economics and Political Science, LSE Library.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. Chad Syverson, 2003. "Product Substitutability and Productivity Dispersion," NBER Working Papers 10049, National Bureau of Economic Research, Inc.
  4. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
  5. 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.
  6. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," NBER Working Papers 10501, National Bureau of Economic Research, Inc.
  7. Eric Bartelsman & John Haltiwanger & Stefano Scarpetta, 2006. "Reallocation and Productivity Growth: The FAQs," 2006 Meeting Papers 293, Society for Economic Dynamics.
  8. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
  9. Chad Syverson, 2007. "PRICES, SPATIAL COMPETITION AND HETEROGENEOUS PRODUCERS: AN EMPIRICAL TEST -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 197-222, 06.
  10. Jose E. Galdon-Sanchez & James A. Schmitz, Jr., 2003. "Competitive pressure and labor productivity: world iron ore markets in the 1980s," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 9-23.
  11. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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