Panel data estimates of the production function and product and labor market imperfections

Abstract

Embedding the efficient bargaining model into the R. Hall (1988) approach for estimating price-cost margins shows that both imperfections in the product and labor markets generate a wedge between factor elasticities in the production function and their corresponding shares in revenue. This article investigates these two sources of discrepancies both at the industry level and the firm level using an unbalanced panel of 10646 French firms in 38 manufacturing industries over the period . By estimating standard production functions and comparing the estimated factor elasticities for labor and materials and their shares in revenue, we are able to derive estimates of average price-cost mark-up and extent of rent sharing parameters. For manufacturing as a whole, our estimates of these parameters are of an order of magnitude of 1.17 and 0.44 respectively. Our industry-level results indicate that industry differences in these parameters and in the underlying estimated factor elasticities and shares are quite sizeable. Since firm production function, behavior and market environment are very likely to vary even within industries, we also investigate firm-level heterogeneity in estimated mark-up and rent-sharing parameters. To determine the degree of true heterogeneity in these parameters, we adopt the P.A. Swamy (1970) methodology allowing to correct the observed variance in the firm-level estimates from their sampling variance. The median of the firm estimates of the price-cost mark-up ignoring labor market imperfections is of 1.10, while as expected it is higher of 1.20 when taking them into account and the median of the corresponding firm estimates of the extent of rent sharing is of 0.62. The Swamy corresponding robust estimates of true dispersion are of about 0.18, 0.37 and 0.35, showing indeed very sizeable within-industry firm heterogeneity. We find that firm size, capital intensity, distance to the industry technology frontier and investing in R&D seem to account for a significant part of this heterogeneity.

Towards an equitable healthcare in China: evaluating the productive efficiency of community health centers in Jiangsu Province

“…The major primary healthcare providers in the rural areas are the village clinics and township health centers while county hospitals provide specialty medical services. In the urban areas however, the Community Health Centers (CHCs) and district hospitals provide primary healthcare while municipal and provincial hospitals offer tertiary medical services to both urban and rural people [4]. Eventhough the healthcare sector had been expanding since its inception, the 1970s, saw a more rapid growth in the number of institutions, workforce and challenges in the sector.…”

Trade Policy, Competition and Productivity: The Impact of EU Harmonization in the Dutch Food Processing Industry

“…10 Most related studies (e.g., Diewert and Fox 2009;De Loecker 2007;De Loecker and Warzynski 2009;Levinsohn 1993;Botasso and Sembenelli 2001) restrict the markup values to be constant across firms within a given year, thus focusing on the pattern of their mean values over time. Alternatively, average firm-specific markups can be calculated at the expense of the time dimension (Dobbelaere and Mairesse 2009) or on the basis of interaction with other firm-specific, time-varying variables (e.g., Konings et al 2001). 11 For instance, Basu and Fernald (2002) and Diewert and Fox (2009) theoretically proof that the degree of returns to scale that is derived from a value-added production function leads to magnified estimates.…”

Comparing Micro-evidence on Rent Sharing from Three Different Approaches

“…We present the main ingredients of the theoretical framework. For technical details, we refer to Dobbelaere and Mairesse (2013).…”

“…The …rst approach, developed in Dobbelaere and Mairesse (2013), uses econometric production functions as a tool for testing the competitiveness of labor and product markets and for assessing their degree of imperfection. 2 This approach, to which we refer as the productivity approach, only exploits the …rm-level panel and requires data on production values, factor inputs and factor costs.…”