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Productivity and reallocation: evidence from the universe of Italian firms

Andrea Linarello () and Andrea Petrella ()
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Andrea Petrella: Banca d'Italia

No 353, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper investigates the contribution of allocative efficiency to aggregate labor productivity growth in Italy between 2005 and 2013. Exploiting a unique dataset that covers the universe of active firms, we find that allocative efficiency accounted for 35 per cent of aggregate productivity in 2005 and its weight increased by almost 7 percentage points during the period of observation. We show that the dynamics of aggregate labor productivity benefited from the reallocation of resources among continuing firms and from the net effect of business demography. Among industries, we find that reallocation has been stronger in industries that are more exposed to import competition from developing countries. Moreover, we document that the observed adjustments have not evenly affected all firms across the productivity distribution: selection has become tougher for firms belonging to the lower tail, forcing the exit of the least productive firms and favoring the reallocation of the workforce to the best performing firms.

Keywords: aggregate labor productivity; allocative efficiency (search for similar items in EconPapers)
JEL-codes: L25 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-eff, nep-eur, nep-sog and nep-tid
Date: 2016-09
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Journal Article: Productivity and Reallocation: Evidence from the Universe of Italian Firms (2017) Downloads
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