Rigid labour compensation and flexible employment? Firm-level evidence with regard to productivity for Belgium

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm- level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the year. JEL Classification: J30, J60Employment, hours, labour compensation, total factor productivity

Rigid labour compensation and flexible employment ? Firm-level evidence with regard to productivity for Belgium

Using firm-level data for Belgium over the period 1997-2005, we evaluate the elasticity of firms' labour and real average labour compensation to microeconomic total factor productivity (TFP). Our results may be summarised as follows. First, we find that the elasticity of average labour compensation to firm-level TFP is very low contrary to that of labour, consistent with real wage rigidity. Second, while the elasticity of average labour compensation to idiosyncratic firm-level TFP is close to zero, the elasticity with respect to aggregate sector-level TFP is high. We argue that average labour compensation adjustment mainly occur at the sector level through sectoral collective bargaining, which leaves little room for firm-level adjustment to firm-specific shocks. Third, we report evidence of a positive relationship between hours and idiosyncratic TFP, as well as aggregate TFP within the yearlabour compensation, employment, hours, Total Factor Productivity

How important are capital and total factor productivity for economic growth?

The authors examine the relative importance of the growth of physical and human capital and the growth of total factor productivity (TFP) using newly organized data on 145 countries that span more than one hundred years for twenty-four of these countries. For all countries, only 3 percent of average output growth per worker is associated with TFP growth. This world average masks interesting variations across countries and regions. Of the nine regions, TFP growth accounts for about twenty percent of average output growth in three regions and between ten and zero percent in the other three regions. In three regions, TFP growth is negative on average. The authors use priors from theories to construct estimates of the relative importance of the variances of aggregate input growth and TFP growth for the variance of output growth across countries. Across all countries, variation in aggregate input growth per worker could account for as much as 35 percent of the variance of the growth of output per worker across countries, and variation in TFP growth could account for as much as 87 percent of that variance. Much of the importance of the variance of TFP growth appears to be associated with negative TFP growth.Productivity ; Economic development ; Capital ; Industrial productivity

Do Foreign Mergers & Acquisitions Boost Firm Productivity?

This paper examines the causal relationship between foreign mergers and acquisitions and firm productivity in the UK over the period 1999-2007. Our results raise questions about the existence of aggregate effects of foreign ownership on TFP in the longer-run. However, we find significant heterogeneity in the TFP effects of foreign M&A at the industry level. Overall, we uncover a systematic pattern of post-acquisition TFP effects that is consistent with the most recent theoretical models of firm heterogeneity and cross-border mergers and acquisitions as mode of foreign entry. Furthermore, we find positive aggregate effects on labor productivity due to capital deepening but not due to changes in TFP.Cross-border mergers and acquisitions; Productivity; Firm heterogeneity

Total Factor Productivity in Thai Agriculture Measurement and Determinants

This paper studies total factor productivity (TFP) in Thai agriculture to provide better empirical evidence on the TFP measure and the factors influencing it. It employs time-series data at an aggregate level over the period 1970-2006 for both crops and livestock,individually, using the conventional growth accounting framework. The TFP measures are then used to investigate their determinants using the error correction modeling technique. The results confirm the general expectation from previous studies that TFP makes an important contribution to output growth and that agricultural research plays an important role in determining TFP in both the crop and livestock sectors.total factor productivity, TFP decomposition, Thai agriculture

Which sectors make the poor countries so unproductive?

Standard growth accounting exercises find large cross-country differences in aggregate TFP. Here we ask whether specific sectors are driving these differences, and, if this is the case, which these problem sectors are. We argue that to answer these questions we need to consider four sectors. In contrast, the literature typically considers only two sectors. Our four sectors produce services (nontradable consumption), consumption goods (tradable consumption), construction (nontradable investment), and machinery and equipment (tradable investment). Interacting the data from the 1996 benchmark study of the Penn World Tables with economic theory, we find that the TFP differences across countries are much larger in the two tradable sectors than in the two nontradable sectors. This is consistent with the Balassa--Samuelson hypothesis. We also find that within the tradable sectors the TFP differences are much larger in machinery and equipment than in consumption goods. We illustrate the usefulness of our findings by accounting for the conflicting results of the existing two--sector analyses and by developing criteria for a successful theory of aggregate TFP

Inflation, Investment Composition and Total Factor Productivity

This paper employs a dynamic stochastic general equilibrium model with a financial market friction to rationalize the empirically observed negative relationship between inflation and total factor productivity (TFP). Specifically, an empirical analysis of US macroeconomic time series establishes that there is a negative causal effect of inflation on aggregate productivity. Rather than taking the productivity process as exogenous, the model is therefore set up to feature an endogenous component of TFP. This is achieved by allowing physical investment to be channelled into two distinct technologies: a safe, but return-dominated technology and a superior technology which is subject to idiosyncratic liquidity risk. An agency problem prevents complete insurance against liquidity risk, and the scope for insurance is endogenously determined via the relevant liquidity premium. Since the liquidity premium is positively related to the rate of inflation, the model demonstrates how nominal fluctuations have an influence not only on the overall amount, but also on the qualitative composition of aggregate investment and hence on TFP. The quantitative relevance of the underlying transmission mechanism which links nominal fluctuations to TFP via corporate liquidity holdings and the composition of aggregate investment is corroborated by means of the quantitative analysis of the calibrated model economy as well as a detailed analysis of industry-level and firm-level panel data. Notably, the empirical findings are consistent with both the properties of the agency problem postulated in the theoretical model and its implications for corporate liquidity holdings and physical investment portfolios.

Age-structured Human Capital and Spatial Total Factor Productivity Dynamics

This paper models total factor productivity (TFP) in space and proposes an empirical model for TFP interdependence across spatial locations. The interdependence is assumed to occur due to age-structured human capital dynamics. A semi-parametric spatial vector autoregressive framework is suggested for modeling spatial TFP dynamics where the role of demographic state and technological change are explicitly incorporated in the model to influence their spatial TFP co-movements. Empirical scrutiny in case of Asian countries suggests that cross-country human capital differences in their accumulation and appropriation pattern significantly influenced TFP volatility interdependence. The finding of complementarity in TFP in spatial locations calls for joint policy program for improving aggregate and individual country welfare.Total factor productivity, Spatial growth, Non-linearity, Human capital, Age-structure, Semi-parametric VAR

Biased Technical Change, Intermediate Goods and Total Factor Productivity

Biased technical change can be defined as changes that affect the elasticity of output with respect to inputs. In this paper, I analyze the effect of biased technical change on total factor productivity (TFP). I construct an input-output economy in which firms produce gross output using capital, labor and intermediate goods. In equilibrium, biased technical change appears as an explicit part of TFP in the value added aggregate production function, where the latter is obtained through the aggregation of individual firms optimal decisions. A larger elasticity of gross output with respect to intermediates implies a smaller TFP level. I use the model to quantify the impact of biased technical change for measured TFP growth in Italy. The exercise shows that biased technical change can account for the productivity slowdown observed in Italy from 1994 to 2004

Neoclassical Growth and the Adoption of Technologies

We introduce a growth model of technology diffusion and endogenous Total Factor Productivity (TFP) levels both at the sector and aggregate level. At the aggregate, the model behaves as the Neoclassical growth model. Our goal is for this model to bridge the gap between the theoretical and empirical studies of technology adoption and economic growth. We bridge this gap in three important directions. First of all, we use our model to show how one unified theoretical framework is broadly consistent with the observed dynamics of both economic growth as well as of many different measures of technology adoption, like adoption rates, capital to output ratios, and output ratios. Secondly, we estimate our model using a broad range of technological adoption measures, covering 17 technologies and 21 industrialized countries over the past 180 years. This allows us to show how its predicted adoption patterns fit those observed in the data. Finally, we estimate the disparities in sectoral productivity levels as well as aggregate TFP that can be attributed to the differences in the range of technologies in use across countries. These disparities are almost completely determined by the quality of the worst technology in use, rather than by the quality of the newest technology that has just been adopted or by the number of technologies in use. Further, we find that the TFP component attributable to the range of technologies used is highly correlated with overall sectoral TFP differences across countries, though the variance is smaller.