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Whittling Away At Productivity Dispersion Futher Notes: Persistent Dispersion or Measurement Error?
November 1996
Working Paper Number:
CES-96-11
This note considers several hypotheses regarding measurement error as a source of observed cross-sectional dispersion in plant-level productivity in the US textile industry. The hypotheses that reporting error and/or price rigidity in either materials and/or output account for a substantial portion of the observed dispersion in productivity are consistent with the data. Similarly, the hypothesis that transitory product niches or fashion effects lead to differential markups and consequently dispersion in observed productivity is consistent with the data. The hypothesis that transfer pricing problems lead to persistent differences in plant-level productivity, in contrast, does not appear to be consistent with the data. Finally, the hypothesis that some plants have permanent product niches that lead to dispersion in observed productivity does not appear to be consistent with data. In order to avoid imposing a strong functional form on the data, this note follows a non-parametric methodology developed in the early paper.
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Efficiency of Bankrupt Firms and Industry Conditions: Theory and Evidence
October 1996
Working Paper Number:
CES-96-12
We show that the incentives to reorganize inefficient firms and redeploy their assets depend on the change in industry output and industry characteristics. We use plant-level data to investigate the productivity of Chapter 11 bankrupt firms and asset-sale and closure decisions. We find no evidence of bankruptcy costs in industries with declining output growth, where most bankruptcies occur. In declining industries, bankrupt firms' plants are not less productive than industry averages and do not decline in productivity while in Chapter 11. In these industries, Chapter 11 appears to be a mechanism for fostering exit of capacity. In high-growth industries, there is some limited evidence of productivity declines while in Chapter 11 for a subsample of firms that remain in Chapter 11 for four or more years. Examining asset sales and closures by bankrupt firms and their competitors, we find that Chapter 11 status is of limited importance in predicting these decisions once industry and plant characteristics are taken into account. More generally, the findings imply that Chapter 11 may involve few real economic costs, and that industry effects and sample selection issues are very important in evaluating the performance of bankrupt firms.
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Technology and Jobs: Secular Changes and Cyclical Dynamics
September 1996
Working Paper Number:
CES-96-07
In this paper, we exploit plant-level data for U.S. manufacturing for the 1970s and 1980s to explore the connections between changes in technology and the structure of employment and wages. We focus on the nonproduction labor share (measured alternatively by employment and wages) as the variable of interest. Our main findings are summarized as follows: (i) aggregate changes in the nonproduction labor share at annual and longer frequencies are dominated by within plant changes; (ii) the distribution of annual within plant changes exhibits a spike at zero, tremendous heterogeneity and fat left and right tails; (iii) within plant secular changes are concentrated in recessions; and (iv) while observable indicators of changes in technology account for a significant fraction of the secular increase in the average nonproduction labor share, unobservable factors account for most of the secular increase, most of the cyclical variation and most of the cross sectional heterogeneity.
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Learning by Doing and Plant Characteristics
August 1996
Working Paper Number:
CES-96-05
Learning by doing, especially spillover learning, has received much attention lately in models of industry evolution and economic growth. The predictions of these models depend on the distribution of learning abilities and knowledge flows across firms and countries. However, the empirical literature provides little guidance on these issues. In this paper, I use plant level data on a sample of entrants in SIC 38, Instruments, to examine the characteristics associated with both proprietary and spillover learning by doing. The plant level data permit tests for the relative importance of within and between firm spillovers. I include both formal knowledge, obtained through R&D expenditures, and informal knowledge, obtained through learning by doing, in a production function framework. I allow the speed of learning to vary across plants according to characteristics such as R&D intensity, wages, and the skill mix. The results suggest that (a) Ainformal@ knowledge, accumulated through production experience at the plant, is a much more important source of productivity growth for these plants than is Aformal@ knowledge gained via research and development expenditures, (b) interfirm spillovers are stronger than intrafirm spillovers, (c) the slope of the own learning curve is positively related to worker quality, (d) the slope of the spillover learning curve is positively related to the skill mix at plants, (e) neither own nor spillover learning curve slopes are related to R&D intensities. These results imply that learning by doing may be, to some extent, an endogenous phenomenon at these plants. Thus, models of industry evolution that incorporate learning by doing may need to be revised. The results are also broadly consistent with the recent growth models.
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Technology Locks, Creative Destruction And Non-Convergence In Productivity Levels
April 1995
Working Paper Number:
CES-95-06
This paper presents a simple solution to a new model that seeks to explain the distribution of plants across productivity levels within an industry, and empirically confirms some key predictions using the U.S. textile industry. In the model, plants are locked into a given productivity level, until they exit or retool. Convex costs of adjustment captures the fact that more productive plants expand faster. Provided there is technical change, productivity levels do not converge; the model achieves persistent dispersion in productivity levels within the context of a distortion free competitive equilibrium. The equilibrium, however, is rather turbulent; plants continually come on line with the cutting edge technology, gradually expand and finally exit or retool when they cease to recover their variable costs. The more productive plants create jobs, while the less productive destroy them. The model establishes a close link between productivity growth and dispersion in productivity levels; more rapid productivity growth leads to more widespread dispersion. This prediction is empirically confirmed. Additionally, the model provides an explanation for S-shaped diffusion.
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Whittling Away At Productivity Dispersion
March 1995
Working Paper Number:
CES-95-05
In any time period, in any industry, plant productivity levels differ widely and this dispersion is persistent. This paper explores the sources of this dispersion and their relative magnitudes in the textile industry. Plants that are measured as being more productive but pay higher wages are not necessarily more profitable; wage dispersion can account for approximately 15 percent of productivity dispersion. A plant that is highly productive today may not be as productive tomorrow. I develop a new method for measuring ex-ante dispersion and the percentage of dispersion "explained" by mean reversion. Mean reversion accounts for as much as one half the observed productivity dispersion. A portion of the dispersion, however, appears to reflect real quality differences between plants; plants that are measured as being more productive expand faster and are less likely to exit.
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Pollution Abatement Costs, Regulation And Plant-Level Productivity
December 1994
Working Paper Number:
CES-94-14
We analyze the connection between productivity, pollution abatement expenditures, and other measures of environmental regulation for plants in three industries (paper, oil, and steel). We examine data from 1979 to 1990, considering both total factor productivity levels and growth rates. Plants with higher abatement cost levels have significantly lower productivity levels. The magnitude of the impact is somewhat larger than expected: $1 greater abatement costs appears to be associated with the equivalent of $1.74 in lower productivity for paper mills, $1.35 for oil refineries, and $3.28 for steel mills. However, these results apply only to variation across plants in productivity levels. Estimates looking at productivity variation within plants over time, or estimates using productivity growth rates show a smaller (and insignificant) relationship between abatement costs and productivity. Other measures of environmental regulation faced by the plants (compliance status, enforcement activity, and emissions) are not significantly related to productivity.
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Primary Versus Secondary Production Techniques in U.S. Manufacturing
October 1994
Working Paper Number:
CES-94-12
In this paper we discuss and analyze a classical economic puzzle: whether differences in factor intensities reflect patterns of specialization or the co-existence of alternative techniques to produce output. We use observations on a large cross-section of U.S. manufacturing plants from the Census of Manufactures, including those that make goods primary to other industries, to study differences in production techniques. We find that in most cases material requirements do not depend on whether goods are made as primary products or as secondary products, which suggests that differences in factor intensities usually reflect patterns of specialization. A few cases where secondary production techniques do differ notably are discussed in more detail. However, overall the regression results support the neoclassical assumption that a single, best-practice technique is chosen for making each product.
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Cross Sectional Variation In Toxic Waste Releases From The U.S. Chemical Industry
August 1994
Working Paper Number:
CES-94-08
This paper measures and examines the 1987 cross sectional variation in toxic releases from the U.S. chemical industry. The analysis is based on a unique plant level data set of over 2,100 plants, combining EPA toxic release data with Census Bureau data on economic activity. The main results are that intra-industry variation in toxic releases are as great as, or greater, than inter-industry variation, and that plant, firm, and regulatory characteristics are important factors in explaining observed variation in toxic releases. Even after controlling for primary product and plant characteristics, there are some firms that generate significantly lower toxic waste due to managerial ability and/or technology differences.
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CONSTRUCTION OF REGIONAL INPUT-OUTPUT TABLES FROM ESTABLISHMENT-LEVEL MICRODATA: ILLINOIS, 1982
August 1993
Working Paper Number:
CES-93-12
This paper presents a new method for use in the construction of hybrid regional input-output tables, based primarily on individual returns from the Census of Manufactures. Using this method, input- output tables can be completed at a fraction of the cost and time involved in the completion of a full survey table. Special attention is paid to secondary production, a problem often ignored by input-output analysts. A new method to handle secondary production is presented. The method reallocates the amount of secondary production and its associated inputs, on an establishment basis, based on the assumption that the input structure for any given commodity is determined not by the industry in which the commodity was produced, but by the commodity itself -- the commodity-based technology assumption. A biproportional adjustment technique is used to perform the reallocations.
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