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Firm Level Productivity under Imperfect Competition in Output and Labor Markets

Author

Listed:
  • Sara Amoroso
  • Peter M. Kort
  • Bertrand Melenberg
  • Joseph Plasmans
  • Mark Vancauteren

Abstract

This article examines the role of the interaction between product market and labor market imperfections in determining total factor productivity growth (TFPG). Embedding Dobbelaere and Mairesse’s (2009) generalization of Hall’s (1990) approach, allowing for the possibility that wages are determined according to an efficient bargaining process between employers and employees, we correct estimated TFPG for possible biases arising from labor market imperfections. Our analysis contributes to the literature in a number of ways. First, we propose a new empirical measure of TFPG which takes into account possible biases coming from imperfect competition on both labor and output markets, whereas Dobbelaere and Mairesse (2009) focus on the decomposition of the Solow residual. Second, in contrast to most of the literature following Hall’s approach, we estimate market power including the user cost of capital stock. Third, we measure the sensitivity of TFPG to an alternative specification of competition based on relative profits. Using a large Dutch firm-level panel database over the period 1989-2005, we find that workers’ unions power, and in general rigidities of the labor market, affect firms’ marginal cost, and, consequently, the markups. Moreover, taking into account variable returns to scale and imperfect competition in the output market translate into increased TFPG, while accounting for labor market bargaining power leads to lower TFPG. Next, the investigation of our empirical relationship between the price-cost margin and an alternative specification of imperfect competition of the output market (profit elasticity) as a sensitivity analysis of the TFPG shows that adding more structure to the competition measure does not affect the level of productivity change.

Suggested Citation

  • Sara Amoroso & Peter M. Kort & Bertrand Melenberg & Joseph Plasmans & Mark Vancauteren, 2010. "Firm Level Productivity under Imperfect Competition in Output and Labor Markets," CESifo Working Paper Series 3082, CESifo.
  • Handle: RePEc:ces:ceswps:_3082
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    3. Sabien Dobbelaere & Mark Vancauteren, 2014. "Market imperfections, skills and total factor productivity : Firm-level evidence on Belgium and the Netherlands," Working Paper Research 267, National Bank of Belgium.
    4. Mark Vancauteren & Bruno Henry de Frahan, 2011. "Trade Policy, Competition and Productivity: The Impact of EU Harmonization in the Dutch Food Processing Industry," De Economist, Springer, vol. 159(4), pages 483-509, December.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L00 - Industrial Organization - - General - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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