Employment, Capital and Productivity Dynamics: Evidence from the Manufacturing Sector in Uruguay

Abstract

Using a sample of Uruguayan establishments we analyze employment, capital and productivity dynamics over a period with changes in trade policy and in the institutional setting of employment negotiations. Firms performed a technological conversion towards more capital intensive technologies. This brought an increase in labor and total factor productivity. Creation and destruction rates were relatively high and pervasive over time, sectors, size and age. Exits explain a sizeable part of destruction rates. Most of the excess reallocation was due to movements "within" rather than "between" sectors. Thus, high reallocation rates were probably linked to establishment level heterogeneity rather than aggregate shocks.

Keywords: employment and capital reallocation, TFP, Latin-America