eric bartelsman* sep. 17, 2008 warsaw, poland *vrije universiteit amsterdam, tinbergen institute,...
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Eric Bartelsman*
Sep. 17, 2008
Warsaw, Poland*Vrije Universiteit Amsterdam, Tinbergen Institute, and IZA;.
Sources of Productivity Sources of Productivity GrowthGrowth
Micro dynamics and macro outcomesMicro dynamics and macro outcomes
Long-run Productivity GrowthLong-run Productivity Growth
Commodity Time to earn 1885 (hours)
Time to earn 2000 (hours)
Productivity multiple
1-speed bicycle
260 7.2 36.1
Office Chair 24 2.0 12.0
Hair Brush 16 2.0 8.0
Silver Spoon 26 34.0 0.8
Source: Brad DeLong, 1991-2000
Economic GrowthEconomic Growth
GDP = Hours worked X GDP/hour Economic growth is weighted sum of:
Growth in labor input Growth in labor productivity
Growth capital/labor ratio Growth in ‘total factor productivity’, or TFP
Innovation as ultimate source of TFP Manna from heaven or intentional creation
Inquiry into sources of Inquiry into sources of productivity growthproductivity growth
For whom is such academic research useful? Curiosity Economic policy Business sector
Productivity ResearchProductivity Research
Research methods traditionally have been macroeconomic Growth models
Solow: exogenous technology Romer: R&D (Human capital) as driver
Growth empirics Cross-country evidence Multi-industry panel data
Growth Accounting (EU-KLEMS)
Value added per hour EU relative to USValue added per hour EU relative to US (source: EU Klems, market sector, EU15)(source: EU Klems, market sector, EU15)
0.7
0.8
0.9
1
1.1
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
EU15 Hi EPL Lo EPL
Results from EUKLEMSResults from EUKLEMS
Nat.Acct. based Growth Accounting dataset• Based on seminal work by Jorgenson
Accounting framework for attributing productivity growth to factors of production
Framework to aid in integration of National Accounts (see Jorgenson and Landefeld 2005).
• attempt to attribute all growth in output to factors under control of firmsIn recent years much growth is not accounted for (TFP growth)
Differences in growth performance between US and EU visible, but not ‘understandable’
Particularly, the differences in the impact of ICT remain ‘a mystery’
Results from EUKLEMSResults from EUKLEMS
1995-2005
EU US
VA% --Kict --TFP VA% --Kict --TFP
Market 2.1 .4 1.0 3.7 .6 1.7
EleCom 3.8 .8 2.8 10.5 .8 8.7
MfgxElc 1.2 .2 1.7 1.8 .2 2.2
DISTR 2.6 .3 1.5 4.1 .5 2.1
FinBus 3.5 .9 -1.0 4.3 .7 .4
Source: Timmer, O’Mahony, and van Ark (2007)
Results from EUKLEMSResults from EUKLEMS
What we have not learned• Why is contribution from IT capital lower in EU
Or… Why is ICT investment lower
• Why is growth in ‘Elecom’ so much lowerOr… Why is ‘Elecom’ sector small, especially in fast growing
parts
• Why is unexplained growth so high? Why is TFP growth so much lower in EUOr… Why is TFP growth especially low in ICT intensive sectors
• What, if anything, is the role of policyOr… If policy affects firms and market interactions, what can
industry data tell us about policy
0
1000
2000
3000
4000
5000
6000
0 20 40 60 80 100 120 140
productivity
freq
uen
cy
Aggregate productivity depends not only on
firm-level productivity distribution…
Average productivity vs Average productivity vs aggregate productivityaggregate productivity
0
1000
2000
3000
4000
5000
6000
0 20 40 60 80 100 120 140
productivity
freq
uen
cy
But also on firm-size distribution
Average productivity vs Average productivity vs aggregate productivityaggregate productivity
0
10000
20000
30000
40000
50000
60000
70000
80000
90000
firm i
sale
s
Businesses produce, not Businesses produce, not countries or industriescountries or industries
Heterogeneity in productivity at the firm-level within sectors or countires
A country may have a ‘long tail’ problem: Or, a lack of ‘excellent’ firms:
Global frontier
country2
country1
long tail
•Sectoral productivity may not be a useful policy Sectoral productivity may not be a useful policy indicatorindicator
Why analysis of firm-level dynamics Why analysis of firm-level dynamics may help answer questionsmay help answer questions
• Heterogeneous agents at micro levelDiversity in firm-level strategies
• Market selectionSales and input growth, conditional on productivity
and economic ‘environment’
• Combination of firm-level productivity impact and market share evolution gives total impact on industry productivity
Sources of productivity growthSources of productivity growth
Pushing out the frontier Increasing productivity below the
frontier Diffusion of technology Reallocating resources from low to high
productivity firms
Example: How to raise Example: How to raise productivity ‘below the frontier’productivity ‘below the frontier’
Diffusion of existing technology Human capital Competitive pressure Framework conditions
Reallocation of resources from less to more productive firms Frictions hamper efficient allocation Policy affects frictions in:
Product markets, labor market, entry/exit
Reallocation and productivityReallocation and productivity
Frictions impede reallocation to most productive firms
Frictions affect ‘selection’ of firms Who will enter, who will exit
‘Olley-Pakes cross-term’ measures the effect
i i
tittitittt PppNP ))(()/1(__
Hungary: allocative efficiency over the transition(cross-term of the Olley Pakes decomposition, manufacturing)
6.5
7
7.5
8
8.5
9
1995 1996 1997 1998 1999 2000 2001
-0.1
-0.05
0
0.05
0.1
0.15
0.2
0.25
total L productivity un-weighted L productivity Cross term (right scale)
Slovenia: allocative efficiency over the transition(cross-term of the Olley Pakes decomposition, manufacturing)
6.5
7
7.5
8
8.5
9
9.5
1993 1994 1995 1996 1997 1998 1999 2000 2001
-0.2
-0.15
-0.1
-0.05
0
0.05
0.1
0.15
total L productivity un-weighted L productivity Cross term (right scale)
Example: ICT AdoptionExample: ICT Adoption
• Carrot and Stick:Profits to be gained if succesful (taking into account
market share gains)
Competitive pressure: Market share/profit losses when others adopt successfully
• Costs and benefits:Readiness: skilled workers, high wages,
complementary inputs
Profits from being successful and scaling up business
Broadband Adoption and Broadband Adoption and ImpactImpact
0 1 2 3 4
0 1 1 2 1 3 1 4
: %
: % %
IT Nijt
ITijt
a v a a DSL a k a k a hrs dummies
b DSL b b w b Cap b HiSkl b Churn dummies
v (log) real value added
Kit ICT capital service
Kn Non-IT capital service
Hrs hours
w Average wage
Cap%it ICT-capital as share of cap.
HiSkl High skilled worker share
DSL% Broadband penetration
Churn Interquartile range of firm-level growth rate distribution
Broadband Adoption and ImpactBroadband Adoption and ImpactVariable DSL% Internet%
a1 ICT-indicator:
1.24 .90 1.20 1.05
a2 Kn .35 .27 .34 .27
a3 Kit -.07 .05 -.08 .05
a4 Hrs .72 .68 .72 .68
b1 w(-1) .24 .02 .30 .01
b2 Cap%it .31 .20 .32 .17
b3 HiSkl .18 .38 .19 .33
b4 Churn .30 .15 .28 .14
dummies c,t i,t c,t i,t
D.F. 659 646 649 646
Impact of Policy Impact of Policy on ICT and Productivityon ICT and Productivity
• Firms have capabilities and desire to ‘try’ new ways of meeting market demandSince mid-1990s, this experimentation is often through ICT
• Firms’ desire to experiment depend on carrot and stickLeveraging of successful investment through scale increase is
an enormous carrot
• Policy affects resource reallocationAnd thus indirectly firm’s choice for innovation strategy
Impact of Labor Market PolicyImpact of Labor Market Policy
• Based on results from Bartelsman, Perotti, and Scarpetta (2008), Employment Protection Legislation (EPL), reduces productivity in ‘frontier’ industries
• Based on results from Bartelsman, Gautier, and de Wind (forthcoming), EPL reduces share of employment in ‘frontier’ industries
• ‘Frontier’ is a bit tautological: it is a sector where payoff to successful experimentation is highest
relative to follower
It is a sector where the succesful firms are relatively furthest from followers
It is sector with most experimentation
ConclusionsConclusions
Productivity growth has its deep origins in the development of new ideas
Firms make decisions on whether to innovate, to utilize existing technology, or just ‘muddle along’
Firms’ decisions depend on policy environment and market interactions
Policy may impact firm’s decisions directly, but also through selection mechanism