Does Input Quality Drive Measured Differences in Firm Productivity?

Jeremy Fox and Valerie Smeets ()

No 16853, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Firms in the same industry can differ in measured productivity by multiples of 3. Griliches (1957) suggests one explanation: the quality of inputs differs across firms. We add labor market history variables such as experience and firm and industry tenure, as well as general human capital measures such as schooling and sex. We also use the wage bill and worker fixed effects. We show adding human capital variables and the wage bill decreases the ratio of the 90th to 10th productivity quantiles from 3.27 to 2.68 across eight Danish manufacturing and service industries. The productivity dispersion decrease is roughly of the same order of magnitude as some competitive effects found in the literature, but input quality measures do not explain most productivity dispersion, despite economically large production function coefficients. We find that the wage bill explains as much dispersion as human capital measures.

JEL-codes: J21 J23 L11 L23 (search for similar items in EconPapers)
Date: 2011-03
Note: IO LS PR
References: View complete reference list from CitEc
Citations: View citations in EconPapers (125)

Published as Jeremy T. Fox & Valérie Smeets, 2011. "Does Input Quality Drive Measured Differences In Firm Productivity?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(4), pages 961-989, November.

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Journal Article: DOES INPUT QUALITY DRIVE MEASURED DIFFERENCES IN FIRM PRODUCTIVITY? (2011)
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