Measuring Trends and Persistence in Capital and Labor Misallocation

50 Pages Posted: 15 Jun 2019

See all articles by Maurice J. G. Bun

Maurice J. G. Bun

University of Amsterdam (UVA) - Department of Quantitative Economics; Tinbergen Institute

Jasper de Winter

De Nederlandsche Bank

Date Written: June 7, 2019

Abstract

We analyze trends and persistence in the misallocation of labor and capital using firm-level panel data for the Netherlands in the period 2001-2017. We use the dispersion in marginal revenue products of labor and capital to measure the extent of misallocation. Compared to a counterfactual efficient allocation we find that misallocation has had a sizable negative impact on aggregate productivity. Especially capital misallocation has increased over time. The relatively high and rising capital misallocation is caused by a combination of small, highly productive firms facing relatively high capital wedges and large and unproductive firms facing relatively low capital wedges. Exploiting a panel data error components model we find that capital misallocation has a much more permanent character than labor misallocation. Moreover, it is the permanent component of capital misallocation that has increased over time. Finally, we show that in our sample the measurement of misallocation is largely insensitive to capital adjustment costs and alternative specifications of the production function. The contribution of heterogeneous markups to observed misallocation, however, is non-negligible.

Keywords: misallocation, panel data, persistence, productivity

JEL Classification: C23, D24, O47

Suggested Citation

Bun, Maurice J. G. and de Winter, Jasper, Measuring Trends and Persistence in Capital and Labor Misallocation (June 7, 2019). De Nederlandsche Bank Working Paper No. 639 (2019), Available at SSRN: https://ssrn.com/abstract=3404124 or http://dx.doi.org/10.2139/ssrn.3404124

Maurice J. G. Bun (Contact Author)

University of Amsterdam (UVA) - Department of Quantitative Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31-20-5254257 (Phone)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Jasper de Winter

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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