This paper examines the trend in the importance of small producers in the Canadian and U.S. manufacturing sectors from the early 1970s to the late 1990s in order to investigate whether there was a common North American trend in changes in plant size. It finds that small plants in both countries increased their share of employment up to the 1990s, but their share remained stable in the 1990s. Small plants increased their share of output up to the 1990s, but then saw their share of output decline. Over the entire time period, their share of output increased less than their share of employment and, therefore, their relative labour productivity has fallen. The similarity in the trends in the two countries suggests that causes of this phenomenon should be sought in similarities such as the technological environment rather than in country-specific factors like unionization or trade intensities.
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A Comparison of Job Creation and Job Destruction in Canada and the United States
May 1994
Working Paper Number:
CES-94-02
In recent years a growing number of countries have constructed data series on job creation and job destruction using establishment-level data sets. This paper provides a description and detailed comparison of these new data series for the United States and Canada. First, the Canadian and United States industry-level job creation and destruction data are remarkably similar. Industries with high (low) job creation in the US are evidenced by high (low) job creation in Canada. The same is true for job destruction. In addition, the overall magnitude of gross job flows in the two countries is comparable. Second, the time-series patterns of creation and destruction are qualitatively similar but do differ in a number of important respects. In both countries, job destruction is much more cyclically volatile than job creation. This cyclical asymmetry is, however, more pronounced in the United States. The paper finishes with a characterization of the job flow patterns using a modified Blanchard and Diamond (1992) model.
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Longitudinal Economic Data At The Census Bureau: A New Database Yields Fresh Insight On Some Old Issues
January 1990
Working Paper Number:
CES-90-01
This paper has two goals. First, it illustrates the importance of panel data with examples taken from research in progress using the U.S. Census Bureau's Longitudinal Research Database ( LRD ). Although the LRD is not the result of a "true" longitudinal survey, it provides both balanced and unbalanced panel data sets for establishments, firms, and lines of business. The second goal is to integrate the results of recent research with the LRD and to draw conclusions about the importance of longitudinal microdata for econometric research and time series analysis. The advantages of panel data arise from both the micro and time series aspects of the observations. This also leads us to consider why panel data are necessary to understand and interpret the time series behavior of aggregate statistics produced in cross-section establishment surveys and censuses. We find that typical homogeneity assumptions are likely to be inappropriate in a wide variety of applications. In particular, the industry in which an establishment is located, the ownership of the establishment, and the existence of the establishment (births and deaths) are endogenous variables that cannot simply be taken as time invariant fixed effects in econometric modeling.
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Manufacturing Establishments Reclassified Into New Industries: The Effect Of Survey Design Rules
November 1992
Working Paper Number:
CES-92-14
Establishment reclassification occurs when an establishment classified in one industry in one year is reclassified into another industry in another year. Because of survey design rules at the Census Bureau these reclassifications occur systematically over time, and affect the industry-level time series of output and employment. The evidence shows that reclassified establishments occur most often in two distinct years over the life of a sample panel. Switches are not only numerous in these years, they also contribute significantly to measured industry change in industry output and employment. The problem is that reclassifications are not necessarily processed in the year that they occur. The survey rules restrict most change to certain years. The effect of these rules is evidenced by looking at the variance across industry growth rates which increases greatly in these two years. Whatever the reason for reclassifying an establishment, the way the switches are processed raises the possibility of measurement errors in the industry level statistics. Researchers and policymakers relying upon observations in annual changes in industry statistics should be aware of these systematic discontinuities, discrepancies and potential data distortions.
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Exploring The Role Of Acquisition In The Performance Of Firms: Is The "Firm" The Right Unit Of Analysis?
November 1995
Working Paper Number:
CES-95-13
In this article, we examine the effect of acquisitions on productivity performance of acquiring firms using the conventional regression analysis and a method of productivity decomposition. Our empirical work uses both plant- and firm-level data taken from the Longitudinal Research Database (LRD) on the entire population of U.S. food manufacturing firms that operated continuously during 1977-87. We find that (1) acquisitions had a significant, positive effect on acquiring firms' productivity growth, but this effect becomes insignificant when only firm-level data on multi-unit firms are included in the regressions; and (2) the decomposition results show that while the productivity contribution of the external component (acquired plants) is positive, the contribution of the internal component (existing plants) is negative; the two components offset each other leaving productivity of multi-unit acquiring firms virtually unchanged after acquisitions. These results suggest that assessing the impact of acquisitions on the structure and performance of firms requires a careful look at the individual components (i.e., plants) of the firms, particularly for large multi-unit firms.
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Competition and Productivity: Evidence from the Post WWII U.S. Cement Industry
September 2010
Working Paper Number:
CES-10-29
In the mid 1980s, the U.S. cement industry faced a large increase in foreign competition. Foreign cement producers began offering cement at very large discounts on U.S. prices. We show that productivity (measured by TFP) in the industry was falling during the 1960s and 1970s, but that following the increase in competition, productivity has reversed course and is growing strongly. When foreign competition was weak, productivity fell. When it was strong, productivity grew robustly. We explore the reasons for the large productivity increase. We argue that a large share of the productivity gains resulted from significant changes in management practices at plants.
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Job Reallocation And The Business Cycle: New Facts An Old Debate
September 1998
Working Paper Number:
CES-98-11
This paper provides new facts on the nature of job reallocation over the business cycle, and addresses the question of whether reallocation causes recessions or recessions cause reallocation. Although we do not resolve the question of causality, two general findings emerge that advance our understanding of job reallocation and business cycles. First, much of the cyclical fluctuation in gross job flows occurs in larger plants with relatively moderate employment growth that tends to be transitory, especially at medium-term horizons (up to five years). Unusually large employment growth rates, especially plant startups and shutdowns, are primarily small-plant phenomena and tend to be permanent, less cyclical, and occur later in recessions. Further, high job flow rates occur primarily in plants previously experiencing sharp employment contractions or expansions. Second, key variables that should determine the allocation factors of production across plants and sectors do in fact appear to be related to gross job flows, particularly job destruction. Relative prices, productivity, and investment exhibit time series correlations with job reallocation that suggest that allocative driving forces may contribute significantly to business cycle fluctuations.
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Aggregate Productivity Growth: Lessons From Microeconomic Evidence
September 1998
Working Paper Number:
CES-98-12
In this study we focus on the role of the reallocation of activity across individual producers for aggregate productivity growth. A growing body of empirical analysis yields striking patterns in the behavior of establishment-level reallocation and productivity. Nevertheless, a review of existing studies yields a wide range of findings regarding the contribution of reallocation to aggregate productivity growth. Through our review of existing studies and our own sensitivity analysis, we find that reallocation plays a significant role in the changes in productivity growth at the industry level and that the impact of net entry is disproportionate since entering plants tend to displace less productive exiting plants, even after controlling for overall average growth in productivity. However, an important conclusion of our sensitivity analysis is that the quantitative contribution of reallocation to the aggregate change in productivity is sensitive to the decomposition methodology employed. Our findings also confirm and extend others in the literature that indicate that both learning and selection effects are important in this context. A novel aspect of our analysis is that we have examined the role of reallocation for aggregate productivity growth to a selected set of service sector industries. Our analysis considers the 4-digit industries that form the 3-digit industry automobile repair shops. We found tremendous churning in this industry with extremely large rates of entry and exit. Moreover, we found that productivity growth in the industry is dominated establishment data at Census, the results are quite striking and clearly call for further analysis.
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Soft and Hard Within- and Between-Industry Changes of U.S. Skill Intensity: Shedding Light on Worker's Inequality
January 2006
Working Paper Number:
CES-06-01
In order to examine the worsening of inequality between workers of different skill levels over the past three decades and to further motivate the theoretical discussion on this issue, we use the decomposition methodology to focus on the interaction of within- and between-industry changes of the relative skill intensity in U.S. manufacturing. Unlike previous work, we use more detailed levels of industry classification (5-digit SIC product codes), and we analyze the impact of plants switching industries as well as of plant births and deaths on these changes. Internal, plant-level data from the U.S. Census Bureau's Longitudinal Research Database and the new Longitudinal Business Database provide us with the requisite information to conduct these studies. Finally, our empirical conclusions are discussed in relation to the inspired theoretical inference, as they enrich the debate concerning the sources of the inequality by justifying the skill-biased character of technical change.
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Import Price Pressure on Firm Productivity and Employment: The Case of U.S. Textiles
March 2006
Working Paper Number:
CES-06-09
Theoretical research has predicted three different effects of increased import competition on plant-level behavior: reduced domestic production and sales, improving average efficiency of plants, and increased exit of marginal firms. In empirical work, though, such effects are difficult to separate from the impact of exogenous technological progress (or regress). I use detailed plant-level information available in the US Census of Manufacturers and the Annual Survey of Manufacturers for the period 1983-2000 to decompose these effects. I derive the relative contribution of technology and import competition to the increase in productivity and the decline in employment in textiles production in the US in recent years. I then simulate the impact of removal of quota protection on the scale of operation of the average plant and the incentive to plant closure. The methodology employs a number of important innovations in examining the impact of falling import prices on the domestic production of an import-competing good. First, import competition is modeled directly through its impact on the relative prices of monopolistically competitive goods along the lines suggested by Melitz (2000). Second, the effect of technology is incorporated through structural estimation of plant-level production functions in four factors (capital, labor, energy and materials). Solutions to econometric difficulties related to missing capital data and unobserved productivity are incorporated into the estimation technique. The model is estimated for plants with primary product in SIC 2211 (broadwoven cotton cloth). Results validate modeling demand as for differentiated products. Technological coefficients are sensible, with exogenous technological progress playing a large role. In the simulations run, the effects of foreign price competition are orders of magnitude higher than those of technological progress for the period after quotas on imports are removed. The large-scale reduction in employment and output in the US is shown to be a combination of reduced employment and output at plants in continuous operation and of plant closures that exceed new entries.
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Firm Performance And Evolution Empirical Regularities In The U.S. Microdata
October 1996
Working Paper Number:
CES-96-10
This paper presents a view of firm performance, industry evolution, and economic growth that contrasts with the traditional representative firm model. The paper reviews recent empirical work, primarily studies using the Longitudinal Research Database (LRD), that explicitly focuses on individual business units. The major empirical regularity in the studies is that heterogeneity is pervasive -- it is found across and within all sectors and across all plant characteristics. Further, firms are not only different in the cross-section. They enter at different times, make different choices, and react differently to economic shocks. Thus, to understand economic performance and competition, one must move beyond representative firm models. Competition must be understood as a process in which some firms choose correctly and grow while other firms choose poorly and die; the growth of the successful firms at the expense of less successful rivals drives economic growth.
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