Productivity Dispersion and Input Prices: The Case of Electricity
Steven J. Davis
University of Chicago; National Bureau of Economic Research (NBER)
U.S. Census Bureau - Center for Economic Studies
University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)
September 1, 2008
US Census Bureau Center for Economic Studies Paper No. CES-WP- 08-33
We exploit a rich new database on Prices and Quantities of Electricity in Manufacturing (PQEM) to study electricity productivity in the U.S. manufacturing sector. The database contains nearly 2 million customer-level observations (i.e., manufacturing plants) from 1963 to 2000. It allows us to construct plant-level measures of price paid per kWh, output per kWh, output per dollar spent on electric power and labor productivity. Using this database, we first document tremendous dispersion among U.S. manufacturing plants in electricity productivity measures and a strong negative relationship between price per kWh and output per kWh hour within narrowly defined industries. Using an IV strategy to isolate exogenous price variation, we estimate that the average elasticity of output per kWh with respect to the price of electricity is about 0.6 during the period from 1985 to 2000. We also develop evidence that this price-physical efficiency tradeoff is stronger for industries with bigger electricity cost shares. Finally, we develop evidence that stronger competitive pressures in the output market lead to less dispersion among manufacturing plants in price per kWh and in electricity productivity measures. The strength of competition effects on dispersion is similar for electricity productivity and labor productivity.
Number of Pages in PDF File: 41working papers series
Date posted: August 2, 2009
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