Productivity Dispersion and Measurement Error

Several reasons have been put forward to explain the high dispersion of productivity across establishments: quality of management, different input usage and market distortions, to name but a few. Although it is acknowledged that a sizable portion of productivity dispersion may also be due to measurement error, little research has been devoted to identifying how much they contribute. We outline a novel procedure for identifying the role of measurement error in explaining the empirical dispersion of productivity across establishments. The starting point of our framework is the errors-in-variable model consisting of a measurement equation and a structural equation for latent productivity. We estimate the variance of the measurement error and subsequently estimate the variance of the latent productivity variable, which is not contaminated by measurement error. Using Norwegian data on the manufacture of food products, we find that about one percent of the measured dispersion stems from measurement error.     

A linear demand system within a seemingly unrelated time series equations framework

A seemingly unrelated time series equations framework for the linear almost ideal (AID) demand system is considered. The framework is applied to a consumer demand system covering nine non-durable commodities. Within a specification where the static linear AID system is augmented by latent variables representing stochastic trends and seasonality, demand homogeneity is tested; both in each equation and in the system as a whole. Income and own-price elasticities are calculated under homogeneity restrictions. Although the homogeneous model is formally rejected by statistical tests, it performs well with respect to interpretability, parameter stability and forecasting.     

Lumpy investments, factor adjustments, and labour productivity

This paper describes firms’ output and factor demandsbefore, during, and after episodes of lumpy investment. By usinga rich employer–employee panel data set for two manufacturingindustries and one service industry, we focus on simultaneousvariations in output, capital, materials, man hours, labourproductivity, and the skill composition and hourly cost of labour.Investment spikes are followed by roughly proportional changesin sales, labour, and materials, and significant increases incapital intensity. The changes in labour productivity that areassociated with the investment spikes are small, which indicatesthat productivity improvements are not related to instantaneoustechnological change through investment spikes. Focusing onsectoral differences, capital adjustments are found to be smootherin the service industry than in the two manufacturing industrieswhich may be related to differences in labour intensities betweenthe industries.     

A METHOD FOR IMPROVED CAPITAL MEASUREMENT BY COMBINING ACCOUNTS AND FIRM INVESTMENT DATA

We propose a new method for estimating capital stocks at the firm level by combining business accounts information and investment data. The method also produces capital estimates at the sector or industry level by summing individual firms' capital stocks and appropriately inflating this sum to account for firms not included in the data set. Our approach has two major advantages compared with the much used Perpetual Inventory Method (PIM). First, long investment series are not necessary. Second, sector capital estimates are automatically adjusted for changes in the capital stock because of entry and exit of firms. While capital growth rates in Norwegian manufacturing were only 1 percent on average during 1993–2004 according to national accounts figures, our method yields much higher growth rates of 5.5 percent on average.     

Labor force participation and the discouraged worker effect

This article analyzes labor force participation with particular reference to the discouraged worker effect. Discouraged workers are those who will search for work when the labor market is tight but do not search for work when the labor market is slack because they consider their chances of finding a suitable job too low. The theoretical point of departure is a search model where the worker evaluates the expected utility of searching for work and decides to participate in the labor market if the expected utility of search exceeds the utility of not working. From this framework, we derive an empirical model for the probability that the worker will be out of the labor force, unemployed, or employed. The model is estimated on a sample of married and cohabitating women in Norway covering the period from 1988 to 2008. The results show that the discouraged worker effect is substantial. On average, about one-third of those who are out of the labor force are discouraged, according to our analysis.