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The Cyclicality of Productivity Dispersion

May 2011

Written by: Matthias Kehrig

Working Paper Number:

CES-11-15

Abstract

Using plant-level data, I show that the dispersion of total factor productivity in U.S. durable manufacturing is greater in recessions than in booms. This cyclical property of productivity dispersion is much less pronounced in non-durable manufacturing. In durables, this phenomenon primarily reflects a relatively higher share of unproductive firms in a recession. In order to interpret these findings, I construct a business cycle model where production in durables requires a fixed input. In a boom, when the market price of this fixed input is high, only more productive firms enter and only more productive incumbents survive, which results in a more compressed productivity distribution. The resulting higher average productivity in durables endogenously translates into a lower average relative price of durables. Additionally, my model is consistent with the following business cycle facts: procyclical entry, procyclical aggregate total factor productivity, more procyclicality in durable than non-durable output, procyclical employment and countercyclicality in the relative price of durables and the cross section of stock returns.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
investment, production, econometric, macroeconomic, endogeneity, manufacturing, industrial, earnings, industry productivity, monopolistic, produce, sector, recession, expenditure, depreciation, dispersion productivity, economically, firms productivity, productivity dispersion, productivity shocks, recessionary

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:
Census of Manufactures, Annual Survey of Manufactures, Internal Revenue Service, Ordinary Least Squares, Total Factor Productivity, National Bureau of Economic Research, Bureau of Economic Analysis, Federal Reserve Bank, Longitudinal Business Database, Bureau of Labor, COMPUSTAT, Chicago Census Research Data Center, Census of Manufacturing Firms, E32, Special Sworn Status, Duke University, Federal Reserve Board of Governors

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