Panel data estimates of the production function and product and labor market imperfections
Embedding the efficient bargaining model into the R. Hall (1988) approach for estimating price-cost margins shows that both imperfections in the product and labor markets generate a wedge between factor elasticities in the production function and their corresponding shares in revenue. This article investigates these two sources of discrepancies both at the industry level and the firm level using an unbalanced panel of 10646 French firms in 38 manufacturing industries over the period 1978-2001. By estimating standard production functions and comparing the estimated factor elasticities for labor and materials and their shares in revenue, we are able to derive estimates of average price-cost mark-up and extent of rent sharing parameters. For manufacturing as a whole, our estimates of these parameters are of an order of magnitude of 1.17 and 0.44 respectively. Our industry-level results indicate that industry differences in these parameters and in the underlying estimated factor elasticities and shares are quite sizeable. Since firm production function, behavior and market environment are very likely to vary even within industries, we also investigate firm-level heterogeneity in estimated mark-up and rent-sharing parameters. To determine the degree of true heterogeneity in these parameters, we adopt the P.A. Swamy (1970) methodology allowing to correct the observed variance in the firm-level estimates from their sampling variance. The median of the firm estimates of the price-cost mark-up ignoring labor market imperfections is of 1.10, while as expected it is higher of 1.20 when taking them into account and the median of the corresponding firm estimates of the extent of rent sharing is of 0.62. The Swamy corresponding robust estimates of true dispersion are of about 0.18, 0.37 and 0.35, showing indeed very sizeable within-industry firm heterogeneity. We find that firm size, capital intensity, distance to the industry technology frontier and investing in R&D seem to account for a significant part of this heterogeneity.
|Date of creation:||May 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: ++ 32 (0) 9 264 34 61
Fax: ++ 32 (0) 9 264 35 92
Web page: http://www.ugent.be/eb
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zvi Griliches & Jacques Mairesse, 1995.
"Production Functions: The Search for Identification,"
Harvard Institute of Economic Research Working Papers
1719, Harvard - Institute of Economic Research.
- Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
- Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
- Conyon, M & Machin, Stephen, 1991. "The Determination of Profit Margins in UK Manufacturing," Journal of Industrial Economics, Wiley Blackwell, vol. 39(4), pages 569-82, June.
- Manning, Alan, 2011.
"Imperfect Competition in the Labor Market,"
Handbook of Labor Economics,
- Alan Manning, 2010. "Imperfect competition in the labour market," LSE Research Online Documents on Economics 28729, London School of Economics and Political Science, LSE Library.
- Alan Manning, 2010. "Imperfect Competition in the Labour Market," CEP Discussion Papers dp0981, Centre for Economic Performance, LSE.
- Ellen Brock & Sabien Dobbelaere, 2006.
"Has International Trade Affected Workers’ Bargaining Power?,"
Review of World Economics (Weltwirtschaftliches Archiv),
Springer, vol. 142(2), pages 233-266, July.
- Ellen Brock & Sabien Dobbelaere, 2003. "Has International Trade Affected Workers?Bargaining Power?," LICOS Discussion Papers 13603, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
- Dani Rodrik, 1997. "Has Globalization Gone Too Far?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 57, December.
- Hall, Robert E, 1988.
"The Relation between Price and Marginal Cost in U.S. Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 96(5), pages 921-47, October.
- Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
- Doiron, Denise J, 1992. "Bargaining Power and Wage-Employment Contracts in a Unionized Industry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 583-606, August.
- McDonald, Ian M & Solow, Robert M, 1981. "Wage Bargaining and Employment," American Economic Review, American Economic Association, vol. 71(5), pages 896-908, December.
- Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
- Olivier Blanchard & Francesco Giavazzi, 2001.
"Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets,"
NBER Working Papers
8120, National Bureau of Economic Research, Inc.
- Olivier Blanchard & Francesco Giavazzi, 2003. "Macroeconomic Effects Of Regulation And Deregulation In Goods And Labor Markets," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 879-907, August.
- Olivier Blanchard & Francesco Giavazzi, . "Macroeconomic effects of regulation and deregulation in goods and labor markets," Working Papers 187, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
- James Levinsohn, 1991.
"Testing the Imports-as-Market-Discipline Hypothesis,"
NBER Working Papers
3657, National Bureau of Economic Research, Inc.
- Levinsohn, James, 1993. "Testing the imports-as-market-discipline hypothesis," Journal of International Economics, Elsevier, vol. 35(1-2), pages 1-22, August.
- Levinsohn, J., 1991. "Testing the Imports-As-Market-Discipline Hypothesis," Working Papers 272, Research Seminar in International Economics, University of Michigan.
- Clark, Simon, 1993. "The Strategic Use of Inventories in an Infinite Horizon Model of Wage and Employment Bargaining," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(2), pages 165-83, May.
- Schmalensee, Richard., 1987.
"Inter-industry studies of structure and performance,"
1874-87., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
- Bruno CRÉPON & Rozen DESPLATZ & Jacques MAIRESSE, 2005.
"Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms,"
Annales d'Economie et de Statistique,
ENSAE, issue 79-80, pages 583-610.
- Bruno Crépon & Rozen Desplatz & Jacques Mairesse, 2010. "Price-Cost Margins and Rent Sharing: Evidence from a Panel of French Manufacturing Firms," NBER Chapters, in: Contributions in Memory of Zvi Griliches, pages 583-610 National Bureau of Economic Research, Inc.
- Richard Blundell & Stephen Bond, 2000.
"GMM Estimation with persistent panel data: an application to production functions,"
Taylor & Francis Journals, vol. 19(3), pages 321-340.
- Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
- Dobbelaere, Sabien, 2004. "Estimation of price-cost margins and union bargaining power for Belgian manufacturing," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1381-1398, December.
- Nickell, Stephen, 1999. "Product markets and labour markets1," Labour Economics, Elsevier, vol. 6(1), pages 1-20, March.
- Horn, Henrik & Wolinsky, Asher, 1988. "Worker Substitutability and Patterns of Unionisation," Economic Journal, Royal Economic Society, vol. 98(391), pages 484-97, June.
- Hervé Boulhol & Sabien Dobbelaere & Sara Maioli, 2011.
"Imports as Product and Labour Market Discipline,"
British Journal of Industrial Relations,
London School of Economics, vol. 49(2), pages 331-361, 06.
- H. Boulhol & S. Dobbelaere & S. Maioli, 2007. "Imports as product and labour market discipline," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 07/479, Ghent University, Faculty of Economics and Business Administration.
- Boulhol, Hervé & Dobbelaere, Sabien & Maioli, Sara, 2006. "Imports as Product and Labor Market Discipline," IZA Discussion Papers 2178, Institute for the Study of Labor (IZA).
- Brander, James A. & Spencer, Barbara J., 1985.
"Export subsidies and international market share rivalry,"
Journal of International Economics,
Elsevier, vol. 18(1-2), pages 83-100, February.
- James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
- Michel Dumont & Glenn Rayp & Peter Willemé, 2006. "Does internationalization affect union bargaining power? An empirical study for five EU countries," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 77-102, January.
- Clark, Simon, 1991. "Inventory Accumulation, Wages, and Employment," Economic Journal, Royal Economic Society, vol. 101(405), pages 230-38, March.
- Swamy, P A V B, 1970.
"Efficient Inference in a Random Coefficient Regression Model,"
Econometric Society, vol. 38(2), pages 311-23, March.
- Tom Doan, . "SWAMY: RATS procedure to compute a GLS matrix weighted estimator for a panel data set," Statistical Software Components RTS00206, Boston College Department of Economics.
- Bughin, Jacques, 1996. "Trade Unions and Firms' Product Market Power," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 289-307, September.
- Veugelers, Reinhilde, 1989. "Wage premia, price-cost margins and bargaining power in Belgian manufacturing," European Economic Review, Elsevier, vol. 33(1), pages 169-180, January.
- Karier, Thomas M, 1985. "Unions and Monopoly Profits," The Review of Economics and Statistics, MIT Press, vol. 67(1), pages 34-42, February.
- Filip Abraham & Jozef Konings & Stijn Vanormelingen, 2006. "Price and wage setting in an integrating Europe : firm level evidence," Working Paper Research 93, National Bank of Belgium.
- David Roodman, 2003. "XTABOND2: Stata module to extend xtabond dynamic panel data estimator," Statistical Software Components S435901, Boston College Department of Economics, revised 09 Dec 2014.
- Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
- Damien J. Neven & Lars-Hendrik Röller & Zhentang Zhang, 2002. "Endogenous Costs and Price-Cost Margins," Discussion Papers of DIW Berlin 294, DIW Berlin, German Institute for Economic Research.
- Amemiya, Takeshi, 1977. "The modified second-round estimator in the general qualitative response model," Journal of Econometrics, Elsevier, vol. 5(3), pages 295-299, May.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Jacques Mairesse & Zvi Griliches, 1988. "Heterogeneity in Panel Data: Are There Stable Production Functions?," NBER Working Papers 2619, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:rug:rugwps:09/586. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nathalie Verhaeghe)
If references are entirely missing, you can add them using this form.