No abstract

There is considerable evidence that producer-level churning contributes substantially to aggregate (industry) productivity growth, as more productive businesses displace less productive ones. However, this research has been limited by the fact that producer-level prices are typically unobserved; thus within-industry price differences are embodied in productivity measures. If prices reflect idiosyncratic demand or market power shifts, high "productivity" businesses may not be particularly efficient, and the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. In this paper, we investigate the nature of selection and productivity growth using data from industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. A key dissimilarity is that physical productivity is inversely correlated with plant-level prices while revenue productivity is positively correlated with prices. This implies that previous work linking (revenue-based) productivity to survival has confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. We further show that young producers charge lower prices than incumbents, and as such the literature understates the productivity advantage of new producers and the contribution of entry to aggregate productivity growth.

A pervasive finding in the burgeoning literature using business microdata is that firm turnover is high and that this churning process contributes substantially to aggregate (industry) productivity growth, as more productive entrants appear to displace less productive exiting businesses. A limitation of this research is that establishment-level prices are typically unobserved, resulting in within-industry price differences being embodied in productivity measures. If prices reflect idiosyncratic demand shifts or market power variation, high "productivity" businesses may not be particularly efficient. In this case, the literature's findings might be better interpreted as evidence of entering businesses displacing less profitable, but not necessarily less productive, exiting businesses. This distinction is important not only for the sake of understanding the positive features of selection, but the normative ones as well; whether selection is driven by efficiency or market power differences has important welfare implications. In this paper, we investigate the nature of selection using data from industries where we observe both establishment-level quantities and prices. We find that, as has been found in the preceding literature for revenue-based TFP measures, physical productivity and prices also exhibit considerable within-industry variation. We also show that while physical productivity shares common traits with revenue-based measures, there are important differences. These involve the productivity levels of entrants relative to incumbents and the size of the impact of net entry on productivity aggregates. Furthermore, we characterize the dimension(s) of selection and show that both idiosyncratic productivity and demand (price) conditions affect businesses' survival probabilities.

The U.S. retail trade sector underwent a massive restructuring and reallocation of activity in the 1990s with accompanying technological advances. Using a data set of establishments in that sector, we quantify and explore the relationship between this restructuring and reallocation and labor productivity dynamics. We find that virtually all of the labor productivity growth in the retail trade sector is accounted for by more productive entering establishments displacing much less productive exiting establishments. The productivity gap between low-productivity exiting single-unit establishments and entering high-productivity establishments from large, national chains plays a disproportionate role in these dynamics. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Partnering with the US Census Bureau, we implement a new survey of “structured” management practices in two waves of 35,000 manufacturing plants in 2010 and 2015. We find an enormous dispersion of management practices across plants, with 40 percent of this variation across plants within the same firm. Management practices account for more than 20 percent of the variation in productivity, a similar, or greater, percentage as that accounted for by R&D, ICT, or human capital. We find evidence of two key drivers to improve management. The business environment, as measured by right-to-work laws, boosts incentive management practices. Learning spillovers, as measured by the arrival of large “Million Dollar Plants” in the county, increases the management scores of incumbents. (JEL D22, D24, L25, L60, M11, M50)