The Residual: On Monitoring and Benchmarking Firms, Industries, and Economies with Respect to Productivity

Abstract:     
Productivity is an important component of profitability, and, therefore, an important variable for monitoring and benchmarking exercises. This paper discusses the necessary accounting model, as well as the various measurement problems one gets involved in. By virtue of its structural features, this model is applicable to individual firms and aggregates such as industries or economies.

Though the measurement of productivity change and productivity differences is important, more important is their explanation. Thus firstly, this paper reviews recent results relating to the decomposition of aggregate productivity change into components due to firm dynamics and intra-firm productivity change. All these results were obtained by studying longitudinal enterprise microdata sets. Secondly, this paper reviews a number of methods for decomposing productivity change and productivity differences, whether at the individual firm level or at aggregate level, into partial measures relating to technological change and efficiency change. The combination of both research strategies seems to be a promising undertaking.

Number of Pages in PDF File: 66

Keywords: Producer behavior, profitability, total factor productivity, decomposition, firm level data, index number theory

JEL Classification: M, M31, C44

working papers series