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Dispersion in Dispersion: Measuring Establishment-Level Differences in Productivity
April 2018
Working Paper Number:
CES-18-25RR
We describe new experimental productivity statistics, Dispersion Statistics on Productivity (DiSP), jointly developed and published by the Bureau of Labor Statistics (BLS) and the Census Bureau. Productivity measures are critical for understanding economic performance. Official BLS productivity statistics, which are available for major sectors and detailed industries, provide information on the sources of aggregate productivity growth. A large body of research shows that within-industry variation in productivity provides important insights into productivity dynamics. This research reveals large and persistent productivity differences across businesses even within narrowly defined industries. These differences vary across industries and over time and are related to productivity-enhancing reallocation. Dispersion in productivity across businesses can provide information about the nature of competition and frictions within sectors, and about the sources of rising wage inequality across businesses. Because there were no official statistics providing this level of detail, BLS and the Census Bureau partnered to create measures of within-industry productivity dispersion. These measures complement official BLS aggregate and industry-level productivity growth statistics and thereby improve our understanding of the rich productivity dynamics in the U.S. economy. The underlying microdata for these measures are available for use by qualified researchers on approved projects in the Federal Statistical Research Data Center (FSRDC) network. These new statistics confirm the presence of large productivity differences and we hope that these new data products will encourage further research into understanding these differences.
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The Reallocation Myth
April 2018
Working Paper Number:
CES-18-19
There is a widely held view that much of growth in the U.S. can be attributed to reallocation from low to high productivity firms, including from exiting firms to entrants. Declining dynamism ' falling rates of reallocation and entry/exit in the U.S. ' have therefore been tied to the lackluster growth since 2005. We challenge this view. Gaps in the return to resources do not appear to have narrowed, suggesting that allocative efficiency has not improved in the U.S. in recent decades. Reallocation can also matter if it is a byproduct of innovation. However, we present evidence that most
innovation comes from existing firms improving their own products rather than from entrants or fast-growing firms displacing incumbent firms. Length: 26 pages
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Planning Parenthood: The Affordable Care Act Young Adult Provision and Pathways to Fertility
January 2017
Working Paper Number:
CES-17-65
This paper investigates the effect of the Affordable Care Act young adult provision on fertility and related outcomes. The expected effect of the provision on fertility is not clear ex ante. By expanding insurance coverage to young adults, the provision may affect fertility directly through expanded options for obtaining contraceptives as well as through expanded options for obtaining pregnancy-, birth-, and infant-related care, and these may lead to decreased or increased fertility, respectively. In addition, the provision may also affect fertility indirectly through marriage or labor markets, and the direction and magnitude of these effects is difficult to determine. This paper considers the effect of the provision on fertility as well as the contributing channels by applying difference-in-differences-type methods using the 2008-2010 and 2012-2013 American Community Survey, 2006-2009 and 2012-2013 Centers for Disease Control and Prevention abortion surveillance data, and 2006-2010 and 2011-2013 National Survey of Family Growth. Results suggest that the provision is associated with decreases in the likelihood of having given birth and abortion rates and an increase in the likelihood of using long-term hormonal contraceptives.
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Macro and Micro Dynamics of Productivity: From Devilish Details to Insights
January 2017
Working Paper Number:
CES-17-41R
Researchers use a variety of methods to estimate total factor productivity (TFP) at the firm level and, while these may seem broadly equivalent, how the resulting measures relate to the TFP concept in theoretical models depends on the assumptions about the environment in which firms operate. Interpreting these measures and drawing insights based upon their characteristics thus must take into account these conceptual differences. Absent data on prices and quantities, most methods yield 'revenue productivity' measures. We focus on two broad classes of revenue productivity measures in our examination of the relationship between measured and conceptual TFP (TFPQ). The first measure has been increasingly used as a measure of idiosyncratic distortions and to assess the degree of misallocation. The second measure is, under standard assumptions, a function of funda-
mentals (e.g., TFPQ). Using plant-level U.S. manufacturing data, we find these alternative
measures are (i) highly correlated; (ii) exhibit similar dispersion; and (iii) have similar relationships with growth and survival. These findings raise questions about interpreting the first measure as a measure of idiosyncratic distortions. We also explore the sensitivity of estimates of the contribution of reallocation to aggregate productivity growth to these alternative approaches. We use recently developed structural decompositions of aggregate productivity growth that depend critically on estimates of output versus revenue elasticities. We find alternative approaches all yield a significant contribution of reallocation to
productivity growth (although the quantitative contribution varies across approaches).
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Declining Dynamism, Allocative Efficiency, and the Productivity Slowdown
January 2017
Working Paper Number:
CES-17-17
A large literature documents declining measures of business dynamism including high-growth young firm activity and job reallocation. A distinct literature describes a slowdown in the pace of aggregate labor productivity growth. We relate these patterns by studying changes in productivity growth from the late 1990s to the mid 2000s using firm-level data. We find that diminished allocative efficiency gains can account for the productivity slowdown in a manner that interacts with the within firm productivity growth distribution. The evidence suggests that the decline in dynamism is reason for concern and sheds light on debates about the causes of slowing productivity growth.
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Does Higher Productivity Dispersion Imply Greater Misallocation?A Theoretical and Empirical Analysis
January 2016
Working Paper Number:
CES-16-42
Recent research maintains that the observed variation in productivity within industries reflects resource misallocation and concludes that large GDP gains may be obtained from market-liberalizing polices. Our theoretical analysis examines the impact on productivity dispersion of reallocation frictions in the form of costs of entry, operation, and restructuring, and shows that reforms reducing these frictions may raise dispersion of productivity across firms. The model does not imply a negative relationship between aggregate productivity and productivity dispersion. Our empirical analysis focuses on episodes of liberalizing policy reforms in the U.S. and six East European transition economies. Deregulation of U.S. telecommunications equipment manufacturing is associated with increased, not reduced, productivity dispersion, and every transition economy in our sample shows a sharp rise in dispersion after liberalization. Productivity dispersion under central planning is similar to that in the U.S., and it rises faster in countries adopting faster paces of liberalization. Lagged productivity dispersion predicts higher future productivity growth. The analysis suggests there is no simple relationship between the policy environment and productivity dispersion.
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Environmental Regulation, Abatement, and Productivity: A Frontier Analysis
September 2013
Working Paper Number:
CES-13-51
This research studies the link between environmental regulation and plant level productivity in two U.S. manufacturing industries: pulp and paper mills and oil refineries using Data Envelopment Analysis (DEA) models. Data on abatement spending, emissions and abated emissions are used in different DEA models to study plant productivity outcomes when accounting for abatement spending or emissions regulations. Results indicate that pulp and paper mills and oil refineries in the U.S. suffered decreases in productivity due to pollution abatement activities from 1974 to 2000. These losses in productivity are substantial but have been slowly trending downwards even when the regulations have tended to become more stringent and emission of pollutants has declined suggesting that the best practice has shifted over time. Results also show that the reported abatement expenditures are not able to explain all the losses arising out of regulation suggesting that these abatement expenditures are consistently under-reported.
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REALLOCATION IN THE GREAT RECESSION: CLEANSING OR NOT?
August 2013
Working Paper Number:
CES-13-42
The high pace of output and input reallocation across producers is pervasive in the U.S. economy. Evidence shows this high pace of reallocation is closely linked to productivity. Resources are shifted away from low productivity producers towards high productivity producers. While these patterns hold on average, the extent to which the reallocation dynamics in recessions are 'cleansing' is an open question. That is, are recessions periods of increased reallocation that move resources away from lower productivity activities towards higher productivity uses? It could be recessions are times when the opportunity cost of time and resources are low implying recessions will be times of accelerated productivity enhancing reallocation. Prior research suggests the recession in the early 1980s is consistent with an accelerated pace of productivity enhancing reallocation. Alternative hypotheses highlight the potential distortions to reallocation dynamics in recessions. Such distortions might arise from many factors including, for example, distortions to credit markets. We find that in post-1980 recessions prior to the Great Recession, downturns are periods of accelerated reallocation that is even more productivity enhancing than in normal times. In the Great Recession, we find the intensity of reallocation fell rather than rose (due to the especially sharp decline in job creation) and the reallocation that did occur was less productivity enhancing than in prior recessions.
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Are We Undercounting Reallocation's Contribution to Growth?
January 2013
Working Paper Number:
CES-13-55R
There has been a strong surge in aggregate productivity growth in India since 1990, following
significant economic reforms. Three recent studies have used two distinct methodologies to decompose the sources of growth, and all conclude that it has been driven by within-plant increases in technical efficiency and not between-plant reallocation of inputs. Given the nature of the reforms, where many barriers to input reallocation were removed, this finding has surprised researchers and been dubbed 'India's Mysterious Manufacturing Miracle.' In this paper, we show that the methodologies used may artificially understate the extent of reallocation. One approach, using growth in value added, counts all reallocation growth arising from the movement of intermediate inputs as technical efficiency growth. The second approach, using the Olley-Pakes decomposition, uses estimates of plant-level total factor productivity (TFP) as a proxy for the marginal product of inputs. However, in equilibrium, TFP and the marginal product of inputs are unrelated. Using microdata on manufacturing from five countries ' India, the U.S., Chile, Colombia, and Slovenia ' we show that both approaches significantly understate the true
role of reallocation in economic growth. In particular, reallocation of materials is responsible for over half of aggregate Indian manufacturing productivity growth since 2000, substantially larger than either the contribution of primary inputs or the change in the covariance of productivity and size.
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Management in America
January 2013
Working Paper Number:
CES-13-01
The Census Bureau recently conducted a survey of management practices in over 30,000 plants across the US, the first large-scale survey of management in America. Analyzing these data reveals several striking results. First, more structured management practices are tightly linked to better performance: establishments adopting more structured practices for performance monitoring, target setting and incentives enjoy greater productivity and profitability, higher rates of innovation and faster employment growth. Second, there is a substantial dispersion of management practices across the establishments. We find that 18% of establishments have adopted at least 75% of these more structured management practices, while 27% of establishments adopted less than 50% of these. Third, more structured management practices are more likely to be found in establishments that export, who are larger (or are part of bigger firms), and have more educated employees. Establishments in the South and Midwest have more structured practices on average than those in the Northeast and West. Finally, we find adoption of structured management practices has increased between 2005 and 2010 for surviving establishments, particularly for those practices involving data collection and analysis.
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