Working Paper

From Micro to Macro: A Note on the Analysis of Aggregate Productivity Dynamics Using Firm-Level Data

Abstract: In the empirical literature, the analysis of aggregate productivity dynamics using firm-level productivity has mostly been based on changes in the mean of log-productivity. This paper shows that there can be substantial quantitative and qualitative differences in the results relative to when the analysis is based on changes in the mean of productivity, and discusses the circumstances under which such differences are likely to happen. We use firm-level data for Portugal for the period 2006-2015 to illustrate the point. When the mean of productivity is used, we estimate that TFP and labor productivity for the whole economy increased by 17.7 percent and 5.2 percent, respectively, over this period. But, when the mean of log-productivity is used, we estimate that these two productivity measures declined by 4.3 percent and 1.8 percent, respectively. Similarly disparate results are obtained for productivity decompositions regarding the contributions for productivity growth of surviving, entering and exiting firms.

Keywords: Jensen's inequality; Productivity decomposition; Geometric mean;

JEL Classification: D24; E32; L25; O47;

https://doi.org/10.17016/IFDP.2021.1314

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2021-04-02

Number: 1314