The Cyclicality of Productivity Dispersion
Working Papers from U.S. Census Bureau, Center for Economic Studies
Using plant-level data, I show that the dispersion of total factor productivity in U.S. durable manufacturing is greater in recessions than in booms. This cyclical property of productivity dispersion is much less pronounced in non-durable manufacturing. In durables, this phenomenon primarily reflects a relatively higher share of unproductive firms in a recession. In order to interpret these findings, I construct a business cycle model where production in durables requires a fixed input. In a boom, when the market price of this fixed input is high, only more productive firms enter and only more productive incumbents survive, which results in a more compressed productivity distribution. The resulting higher average productivity in durables endogenously translates into a lower average relative price of durables. Additionally, my model is consistent with the following business cycle facts: procyclical entry, procyclical aggregate total factor productivity, more procyclicality in durable than non-durable output, procyclical employment and countercyclicality in the relative price of durables and the cross section of stock returns.
Keywords: Productivity; Plant-level Risk; Entry and Exit; Business Cycles; Manufacturing; Plant-Level Data (search for similar items in EconPapers)
JEL-codes: D24 E32 L11 L25 L60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-eff, nep-mac and nep-opm
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https://www2.census.gov/ces/wp/2011/CES-WP-11-15.pdf First version, 2011 (application/pdf)
Working Paper: The Cyclicality of Productivity Dispersion (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:11-15
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