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

Author

Listed:
  • Fox, Jeremy T.

    (University of Chicago)

  • Smeets, Valérie

    (Department of Economics, Aarhus School of Business)

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

Suggested Citation

  • Fox, Jeremy T. & Smeets, Valérie, 2007. "Do Input Quality and Structural Productivity Estimates Drive Measured Differences in Firm Productivity?," Working Papers 07-2, University of Aarhus, Aarhus School of Business, Department of Economics.
    • Handle: RePEc:hhs:aareco:2007_002
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    References listed on IDEAS

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    Cited by:

    1. Salvador Navarro & David Rivers & Amit Gandhi, 2008. "Estimating Production Functions with Heterogeneous Firms," 2008 Meeting Papers 935, Society for Economic Dynamics.
    2. Van Biesebroeck, Johannes, 2011. "Wages Equal Productivity. Fact or Fiction? Evidence from Sub Saharan Africa," World Development, Elsevier, vol. 39(8), pages 1333-1346, August.
    3. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon & Sébastien Roux, 2010. "Estimating Agglomeration Economies with History, Geology, and Worker Effects," NBER Chapters, in: Agglomeration Economics, pages 15-66, National Bureau of Economic Research, Inc.

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    Keywords

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management

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