Accounting for Productivity Dispersion Over the Business Cycle

61 Pages Posted: 18 May 2016 Last revised: 9 Jun 2017

See all articles by Robert J. Kurtzman

Robert J. Kurtzman

Board of Governors of the Federal Reserve System

David Zeke

University of Southern California - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 19, 2016

Abstract

This paper presents accounting decompositions of changes in aggregate labor and capital productivity. Our simplest decomposition breaks changes in an aggregate productivity ratio into two components: A mean component, which captures common changes to firm factor productivity ratios, and a dispersion component, which captures changes in the variance and higher order moments of their distribution. In standard models with heterogeneous firms and frictions to firm input decisions, the dispersion component is a function of changes in the second and higher moments of the log of marginal revenue factor productivities and reflects changes in the extent of distortions to firm factor input allocations across firms. We apply our decomposition to public firm data from the United States and Japan. We find that the mean component is responsible for most of the variation in aggregate productivity over the business cycle, while the dispersion component plays a modest role.

Keywords: Productivity, Business Cycles, Accounting Decomposition, Misallocation

JEL Classification: D24, E32, L11

Suggested Citation

Kurtzman, Robert J. and Zeke, David, Accounting for Productivity Dispersion Over the Business Cycle (May 19, 2016). Available at SSRN: https://ssrn.com/abstract=2781538 or http://dx.doi.org/10.2139/ssrn.2781538

Robert J. Kurtzman (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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David Zeke

University of Southern California - Department of Economics ( email )

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Los Angeles, CA 90089
United States

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