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Persistent Productivity Differences Between Firms

  • Katsuya Takii

    (Osaka School of International Public Policy, Osaka University)

We construct a dynamic assignment model that explains persistent productivity differences between firms. Large expected organization capital (firm-specific knowledge) attracts skilled workers, who help to accumulate organization capital. Accumulated large organization capital leads to good performances, which, in turn, confirm high expectations. It is shown that the sluggish movement of expected productivity that occurs through this positive feedback can play a role similar to an unobserved fixed effect in the productivity dynamics. Our calibration exercises suggest that the proposed feedback accompanied by amplification mechanisms inherent in the assignment model can explain a major part of the observed persistence and disparity in productivity.

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Paper provided by Osaka School of International Public Policy, Osaka University in its series OSIPP Discussion Paper with number 11E004.

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Length: 65 pages
Date of creation: Apr 2011
Date of revision:
Handle: RePEc:osp:wpaper:11e004
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