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Accounting for Productivity Dispersion over the Business Cycle

Author

Listed:
  • David Zeke

    (University of Southern California)

  • Robert Kurtzman

    (Federal Reserve Board)

Abstract

We present model-free decompositions of changes in aggregate labor and capital productivity. Our decompositions are a useful accounting tool for researchers looking to assess the role of distortions to the distribution of labor or capital across firms in driving the dynamics of productivity and other aggregates over the business cycle. Our decompositions can be used to test whether firm-level behavior in models with frictions is consistent with firm-level behavior in data, or to help guide model selection. Our simplest decomposition breaks changes in an aggregate factor productivity ratio into two components: a mean component, which captures common changes to firm factor productivity ratios, and a dispersion component, which captures changes in the higher order moments of the distribution of firm factor productivity ratios. We demonstrate analytically in a model of frictions to firm labor and capital choices that the dispersion component reflects changes in the extent of distortions to firm factor input allocations across firms. We then present results on our decomposition using data on non-financial public firms from the United States and Japan. For aggregate productivity, we find the dispersion component is relatively constant over the business cycle, but the mean component moves closely with movements in aggregate productivity.

Suggested Citation

  • David Zeke & Robert Kurtzman, 2016. "Accounting for Productivity Dispersion over the Business Cycle," 2016 Meeting Papers 482, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:482
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    Cited by:

    1. Andrea Caggese & Ander Pérez-Orive, 2017. "Capital Misallocation and Secular Stagnation," Finance and Economics Discussion Series 2017-009, Board of Governors of the Federal Reserve System (U.S.).
    2. Clymo, AJ, 2017. "Heterogeneous Firms, Wages, and the Effects of Financial Crises," Economics Discussion Papers 20572, University of Essex, Department of Economics.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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