Firm Level Productivity Under Imperfect Competition in Output and Labor Markets

50 Pages Posted: 15 Jun 2010

See all articles by Sara Amoroso

Sara Amoroso

Tilburg University

Peter M. Kort

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER)

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER)

Joseph Plasmans

University of Antwerp - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); Tilburg University

Mark Vancauteren

Hasselt University; Statistics Netherlands

Date Written: June 14, 2010

Abstract

This article examines the role of the interaction between product market and labor market imperfections in determining total factor productivity growth (TFPG). Embedding Dobbelaere and Mairesse’s (2009) generalization of Hall’s (1990) approach, allowing for the possibility that wages are determined according to an efficient bargaining process between employers and employees, we correct estimated TFPG for possible biases arising from labor market imperfections. Our analysis contributes to the literature in a number of ways. First, we propose a new empirical measure of TFPG which takes into account possible biases coming from imperfect competition on both labor and output markets, whereas Dobbelaere and Mairesse (2009) focus on the decomposition of the Solow residual. Second, in contrast to most of the literature following Hall’s approach, we estimate market power including the user cost of capital stock. Third, we measure the sensitivity of TFPG to an alternative specification of competition based on relative profits. Using a large Dutch firm-level panel database over the period 1989-2005, we find that workers’ unions power, and in general rigidities of the labor market, affect firms’ marginal cost, and, consequently, the markups. Moreover, taking into account variable returns to scale and imperfect competition in the output market translate into increased TFPG, while accounting for labor market bargaining power leads to lower TFPG. Next, the investigation of our empirical relationship between the price-cost margin and an alternative specification of imperfect competition of the output market (profit elasticity) as a sensitivity analysis of the TFPG shows that adding more structure to the competition measure does not affect the level of productivity change.

JEL Classification: D21, D24, L00, L13

Suggested Citation

Amoroso, Sara and Kort, Peter and Melenberg, Bertrand and Plasmans, Joseph E. J. and Vancauteren, Mark, Firm Level Productivity Under Imperfect Competition in Output and Labor Markets (June 14, 2010). CESifo Working Paper Series No. 3082, Available at SSRN: https://ssrn.com/abstract=1624799 or http://dx.doi.org/10.2139/ssrn.1624799

Sara Amoroso (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Peter Kort

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

HOME PAGE: http://center.uvt.nl/staff/kort/

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2062 (Phone)
+31 13 466 3072 (Fax)

Bertrand Melenberg

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2730 (Phone)

Joseph E. J. Plasmans

University of Antwerp - Department of Economics ( email )

Prinsstraat 13
Antwerp, B-2000
Belgium

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Tilburg University

Postbus 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Mark Vancauteren

Hasselt University ( email )

Agoralaan - building D
Gebouw D
Diepenbeek, 3590
Belgium

Statistics Netherlands ( email )

Henri Faasdreef 312
The Hague, 2492 JP
Netherlands

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