Decomposing the Labor Productivity Gap between Upper-Middle-Income and High-Income Countries

42 Pages Posted: 4 Dec 2019 Last revised: 5 Dec 2019

See all articles by Mohammad Amin

Mohammad Amin

World Bank - Enterprise Analysis Unit

Asif Islam

World Bank - Development Economics Group (DEC)

Usman Khalid

United Arab Emirates University (UAEU)

Date Written: December 3, 2019

Abstract

Using firm-level survey data on registered private firms collected by the World Bank's Enterprise Surveys, this paper compares the level of labor productivity in 22 upper-middle-income countries and 11 high-income countries for which comparable data are available. The results show that labor productivity in the upper-middle-income countries is about 57.5 percent lower than in the high-income countries. The productivity difference is robust and holds for firms of different sizes and industries. The analysis uses the Oaxaca-Blinder decomposition to identify the sources of the productivity gap. It finds that the endowment effect and the structural effect contribute roughly equally to the productivity gap. Several firm- and country-level variables determine the productivity gap. The biggest contributors via the endowment effect include tertiary education attainment, law and order, and quality management proxied by international quality certification. Factors that contribute most via the structural effect include market size, secondary education attainment, and law and order. Thus, the results underline the importance of human capital, institutions, and market size for closing the productivity gap between the upper-middle-income and high-income countries.

Suggested Citation

Amin, Mohammad and Islam, Asif Mohammed and Khalid, Usman, Decomposing the Labor Productivity Gap between Upper-Middle-Income and High-Income Countries (December 3, 2019). World Bank Policy Research Working Paper No. 9073. Available at SSRN: https://ssrn.com/abstract=3498002

Mohammad Amin (Contact Author)

World Bank - Enterprise Analysis Unit ( email )

2121 Pennsylvania Avenue, NW
Washington, DC 20433
United States

Asif Mohammed Islam

World Bank - Development Economics Group (DEC) ( email )

1818 H Street N.W.
Washington, DC 20433
United States

Usman Khalid

United Arab Emirates University (UAEU) ( email )

P.O. Box 15551
Al-Ain
United Arab Emirates

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