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Misallocation or Mismeasurement?
February 2020
Working Paper Number:
CES-20-07
The ratio of revenue to inputs differs greatly across plants within countries such as the U.S. and India. Such gaps may reflect misallocation which hinders aggregate productivity. But differences in measured average products need not reflect differences in true marginal products. We propose a way to estimate the gaps in true marginal products in the presence of measurement error. Our method exploits how revenue growth is less sensitive to input growth when a plant's average products are overstated by measurement error. For Indian manufacturing from 1985'2013, our correction lowers potential gains from reallocation by 20%. For the U.S. the effect is even more dramatic, reducing potential gains by 60% and eliminating 2/3 of a severe downward trend in allocative efficiency over 1978'2013.
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Regulating Mismeasured Pollution: Implications of Firm Heterogeneity for Environmental Policy
August 2018
Working Paper Number:
CES-18-03R
This paper provides the first estimates of within-industry heterogeneity in energy and CO2 productivity for the entire U.S. manufacturing sector. We measure energy and CO2 productivity as output per dollar energy input or per ton CO2 emitted. Three findings emerge. First, within narrowly defined industries, heterogeneity in energy and CO2 productivity across plants is enormous. Second, heterogeneity in energy and CO2 productivity exceeds heterogeneity in most other productivity measures, like labor or total factor productivity. Third, heterogeneity in energy and CO2 productivity has important implications for environmental policies targeting industries rather than plants, including technology standards and carbon border adjustments.
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The Life Cycle of Plants in India and Mexico
September 2012
Working Paper Number:
CES-12-20
In the U.S., the average 40 year old plant employs almost eight times as many workers as the typical plant five years or younger. In contrast, surviving Indian plants exhibit little growth in terms of either employment or output. Mexico is intermediate to India and the U.S. in these respects: the average 40 year old Mexican plant employs twice as many workers as an average new plant. This pattern holds across many industries and for formal and informal establishments alike. The divergence in plant dynamics suggests lower investments by Indian and Mexican plants in process efficiency, quality, and in accessing markets at home and abroad. In simple GE models, we find that the difference in life cycle dynamics could lower aggregate manufacturing productivity on the order of 25% in India and Mexico relative to the U.S.
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Productivity Dispersion and Plant Selection in the Ready-Mix Concrete Industry
September 2011
Working Paper Number:
CES-11-25
This paper presents a quantitative model of productivity dispersion to explain why inefficient producers are slowly selected out of the ready-mix concrete industry. Measured productivity dispersion between the 10th and 90th percentile falls from a 4 to 1 difference using OLS, to a 2 to 1 difference using a control function. Due to volatile productivity and high sunk entry costs, a dynamic oligopoly model shows that to rationalize small gaps in exit rates between high and low productivity plants, a plant in the top quintile must produce 1.5 times more than a plant in the bottom quintile.
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Wage Dynamics along the Life-Cycle of Manufacturing Plants
August 2011
Working Paper Number:
CES-11-24R
This paper explores the evolution of average wage paid to employees along the life-cycle of a manufacturing plant in U.S. Average wage starts out low for a new plant and increases along with labor productivity, as the plant survives and ages. As a plant experiences productivity decline and approaches exit, average wage falls, but more slowly than it rises in the case of surviving new plants. Moreover, average wage declines slower than productivity does in failing plants, while it rises relatively faster as productivity increases in surviving new plants. These empirical regularities are studied in a dynamic model of labor quality and quantity choice by plants, where labor quality is reflected in wages. The model's parameters are estimated to assess the costs a plant incurs as it alters its labor quality and quantity in response to changes in its productivity over its life-cycle.
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Soft Information and Investment: Evidence from Plant-Level Data
October 2010
Working Paper Number:
CES-10-38R
A reduction in travel time between headquarters and plants makes it easier for headquarters to monitor plants and gather 'soft' information--i.e., information that cannot be transmitted through non-personal means. Using a difference-in-differences methodology, I find that the introduction of new airline routes that reduce the travel time between headquarters and plants leads to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%. Consistent with the notion that a reduction in travel time makes it easier for headquarters to monitor plants and gather soft information, I find that my results are stronger: i) for plants whose headquarters are more time constrained; ii) for plants operating in soft-information industries; iii) during the earlier years of my sample period, when alternative, non-personal, means of monitoring and transmitting information were less developed; iv) for plants where information uncertainty is likely to be greater and soft information is likely to be more valuable, such as smaller plants and peripheral plants operating in industries that are not the firm's main industry.
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NBER Patent Data-BR Bridge: User Guide and Technical Documentation
October 2010
Working Paper Number:
CES-10-36
This note provides details about the construction of the NBER Patent Data-BR concordance, and is intended for researchers planning to use this concordance. In addition to describing the matching process used to construct the concordance, this note provides a discussion of the benefits and limitations of this concordance.
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An Alternative Theory of the Plant Size Distribution with an Application to Trade
May 2010
Working Paper Number:
CES-10-10
There is wide variation in the sizes of manufacturing plants, even within the most narrowly defined industry classifications used by statistical agencies. Standard theories attribute all such size differences to productivity differences. This paper develops an alternative theory in which industries are made up of large plants producing standardized goods and small plants making custom or specialty goods. It uses confidential Census data to estimate the parameters of the model, including estimates of plant counts in the standardized and specialty segments by industry. The estimated model fits the data relatively well compared with estimates based on standard approaches. In particular, the predictions of the model for the impacts of a surge in imports from China are consistent with what happened to U.S. manufacturing industries that experienced such a surge over the period 1997'2007. Large-scale standardized plants were decimated, while small-scale specialty plants were relatively less impacted.
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Entry, Exit, and Plant-Level Dynamics over the Business Cycle
June 2008
Working Paper Number:
CES-08-17
This paper analyzes the implications of plant-level dynamics over the business cycle. We first document basic patterns of entry and exit of U.S. manufacturing plants, in terms of employment and productivity, between 1972 and 1997. We show how entry and exit patterns vary during the business cycle, and that the cyclical pattern of entry is very different from the cyclical pattern of exit. Second, we build a general equilibrium model of plant entry, exit, and employment and compare its predictions to the data. In our model, plants enter and exit endogenously, and the size and productivity of entering and exiting plants are also determined endogenously. Finally, we explore the policy implications of the model. Imposing a firing tax that is constant over time can destabilize the economy by causing fluctuations in the entry rate. Entry subsidies are found to be effective in stabilizing the entry rate and output.
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Productivity Growth Patterns in U.S. Food Manufacturing: Case of Dairy Products Industry
May 2004
Working Paper Number:
CES-04-08
A panel constructed from the Census Bureau's Longitudinal Research Database is used to measure total factor productivity growth at the plant-level and analyzes the multifactor bias of technical change at three-digit product group level containing five different four-digit sub-group categories for the U.S. dairy products industry from 1972 through 1995. In the TFP growth decomposition, analyzing the growth and its components according to the quartile ranks show that scale effect is the most significant element of TFP growth except the plants in the third quartile rank where technical change dominates throughout the time periods. The exogenous input bias results show that throughout the time periods, technical change is 1) capital-using; 2) labor-using after 1980; 3) material-saving except 1981-1985 period; and, 4) energy-using except 1981-1985 and 1991-1995 periods. Plant productivity analysis indicate that less than 50% of the plants in the dairy products industry stay in the same category, indicating considerable movement between productivity rank categories. Investment analysis results indicate that plant-level investments are quite lumpy since a relatively small percent of observations account for a disproportionate share of overall investment. Productivity growth is found to be positively correlated with recent investment spikes for plants with TFP ranking in the middle two quartiles and uncorrelated with plants in the smallest and largest quartiles. Similarly, past TFP growth rates present no significant correlation with future investment spikes for plants in any quartile.
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