Productivity, Place, and Plants / Benjamin Schoefer, Oren Ziv.

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Schoefer, Benjamin

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w28772.Publication details: Cambridge, Mass. National Bureau of Economic Research 2021.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Why do cities differ so much in productivity? Using a split-sample IV strategy, we document that up to three quarters of the large measured dispersion in productivity across US cities is spurious and reflects the "luck of the draw" of idiosyncratically heterogeneous plants. Due to this granularity bias, economies with randomly reallocated plants exhibit nearly as high a variance as the empirical economy. For new plants, four fifths of the raw dispersion reflects granularity bias, and their productivity is only imperfectly correlated with that of older plants, which dominate measured productivity levels. These US-based patterns broadly extend to European countries.

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Previous	nber w2877 The Production Smoothing Model is Alive and Well /	nber w28770 Reservation Raises: The Aggregate Labor Supply Curve at the Extensive Margin /	nber w28771 A Congestion Theory of Unemployment Fluctuations /	nber w28772 Productivity, Place, and Plants /	nber w28773 Getting Schooled: The Role of Universities in Attracting Immigrant Entrepreneurs /	nber w28774 The Battle Over Patents: History and the Politics of Innovation /	nber w28775 Tax Planning Knowledge Diffusion via the Labor Market /	Next

May 2021.

Why do cities differ so much in productivity? Using a split-sample IV strategy, we document that up to three quarters of the large measured dispersion in productivity across US cities is spurious and reflects the "luck of the draw" of idiosyncratically heterogeneous plants. Due to this granularity bias, economies with randomly reallocated plants exhibit nearly as high a variance as the empirical economy. For new plants, four fifths of the raw dispersion reflects granularity bias, and their productivity is only imperfectly correlated with that of older plants, which dominate measured productivity levels. These US-based patterns broadly extend to European countries.