The Importance of Reallocations in Cyclical Productivity and Returns to Scale: Evidence from Plant-Level Data

Yoonsoo Lee ()

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: This paper provides new evidence that estimates based on aggregate data will understate the true procyclicality of total factor productivity. I examine plant-level data and show that some industries experience countercyclical reallocations of output shares among firms at different points in the business cycle, so that during recessions, less productive firms produce less of the total output, but during expansions they produce more. These reallocations cause overall productivity to rise during recessions, and do not reflect the actual path of productivity of a representative firm over the course of the business cycle. Such an effect (sometimes called the cleansing effect of recessions) may also bias aggregate estimates of returns to scale and help explain why decreasing returns to scale are found at the industry-level data.

Keywords: Entry; Exit; Productivity; Returns to Scale (search for similar items in EconPapers)
JEL-codes: D24 E32 O47 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2007-03
New Economics Papers: this item is included in nep-eff and nep-mac
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Citations: View citations in EconPapers (10)

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https://www2.census.gov/ces/wp/2007/CES-WP-07-05.pdf First version, 2007 (application/pdf)

Related works:
Working Paper: The importance of reallocations in cyclical productivity and returns to scale: evidence from plant-level data (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:07-05

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