Measuring micro and macro productivity dynamics
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Measuring Micro and Macro Productivity Dynamics. Remarks By John Haltiwanger. Overview. Objectives: Measure productivity at micro and macro levels in consistent fashion Reallocation dynamics at micro level important for aggregate

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Presentation Transcript

Overview
Overview

  • Objectives:

    • Measure productivity at micro and macro levels in consistent fashion

      • Reallocation dynamics at micro level important for aggregate

    • Track firm dynamics including entry and exit to measure and analyze importance of static and dynamic allocative efficiency vs. “within firm productivity” growth

  • Challenges:

    • TFP difficult to measure

    • Firm dynamics difficult to measure


Methodological issues
Methodological Issues

Challenges:

1. Difficult to measure outputs and inputs especially capital

a. Capital

b. Prices especially at micro level

2. Estimating factor elasticities:

a. OLS

b. Cost Shares

c. Proxy methods (Olley-Pakes; Levinsohn-Petrin)

d. IV


Mixed messages on challenges
Mixed Messages on Challenges…

  • Labor productivity and TFP often highly correlated

    • More important to get representative sample and firm dynamics than TFP?

  • Capital measurement difficult and potentially important for policies/institutions

  • Price/output measurement difficult given data limitations and very important for positive and normative implications




Productivity shocks
PRODUCTIVITY SHOCKS

  • TFP - residual from KLEM production function:

    where the production function is estimated in logs:

    Inputs may be correlated w/ productivity, so use IVs:

    • Output of downstream producers.

    • Regional governments expenditures.

    • Energy and materials prices.

    • Estimated factor elasticities by sector using cost-share approach and results are robust (e.g., correlation between two measures is 0.88 and moments very similar).

Source: Eslava et al. (2005)





U.S. Exit Selection Results

Source: Foster, Haltiwanger and Syverson (2005)


Aggregate productivity and allocation
Aggregate productivity and allocation

  • Olley and Pakes (1996) static decomposition:

    where: N: # of firms in a sector;

    • The first term is the unweighted average of firm-level productivity,

    • The second term reflects allocation of resources: do firms with higher productivity have greater market share.

    • Requires representative cross sectional samples but does not require accurate longitudinal linkages

      • Cannot quantify directly importance of entry and exit

    • By construction, cross term takes out country effects so abstracts from some aspects of measurement error


The cross sectional efficiency of the allocation of activity
The cross-sectional efficiency of the allocation of activity

Source: Bartelsman, Haltiwanger and Scarpetta (2005)


The cross sectional efficiency of the allocation of activity1
The cross-sectional efficiency of the allocation of activity

Source: Bartelsman, Haltiwanger and Scarpetta (2005)



Dynamic decomposition of productivity growth
Dynamic decomposition of productivity growth

  • Advantages:

    • Explicit measure of contribution of entry and exit

  • Disadvantages:

    • Horizon dependent

    • Experimentation, learning and selection may make especially dynamic economies have a low contribution of net entry at short horizons but high contribution at long horizons


Within firm productivity growth dominates at five year horizons in mfg
Within-firm productivity growth dominates at five-year horizons in Mfg

Source: Bartelsman, Haltiwanger and Scarpetta (2005)



Differences Between continuing, entering and exiting horizons in Mfg

establishments in U.S. Manufacturing

Source: Foster, Haltiwanger and Syverson (2005)


Sensitivity of U.S. Manufacturing Decomposition to Prices horizons in Mfg

Source: Foster, Haltiwanger and Syverson (2005)


Guidance
Guidance? horizons in Mfg

  • Micro/macro links critical

    • Large fraction of level of productivity associated with allocative efficiency

    • Important contribution of changes in allocative efficiency and/or reallocation/net entry components for productivity growth

  • Measurement of TFP challenge in general and especially at micro level

  • Greater weight on representative sample with micro/macro links than TFP vs. Labor productivity?

    • But measurement matters:

      • Prices and market structure matter and are often missing piece in micro/macro link


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