nep-eff New Economics Papers
on Efficiency and Productivity
Issue of 2015‒10‒25
fifteen papers chosen by

  1. Hospital trusts productivity in the English NHS: uncovering possible drivers of productivity variations By Maria Jose Aragon Aragon; Adriana Castelli; James Gaughan
  2. The Impact of Part-Time Work on Firm Total Factor Productivity: Evidence from Italy By Francesco Devicienti; Elena Grinza; Davide Vannoni
  3. Misallocation and Total Factor Productivity in Italy: Evidence from Firm-Level Data By Sara Calligaris
  4. Technical Efficiency of Connecticut Long Island Sound Lobster Fishery: A Nonparametric Approach to Aggregate Frontier Analysis By Lei Chen; Rangan Gupta; Zinnia Mukherjee; Peter Wanke
  5. The UK's Productivity Puzzle By Alex Bryson; John Forth
  6. Raising the Standard: Minimum Wages and Firm Productivity By Rebecca Riley; Chiara Rosazza-Bondibene
  7. The UK Productivity Puzzle 2008-2013: Evidence From British Businesses By Rebecca Riley; Chiara Rosazza-Bondibene
  8. Broadband Diffusion and Firm Performance in Rural Areas: Quasi-Experimental Evidence By Giulia Canzian; Samuele Poy; Simone Schüller
  9. Multinational firms' entry and productivity: some aggregate implications of firm-level heterogeneity By Contessi, Silvio
  10. (Mis)Allocation Effects of an Overpaid Public Sector By Marcelo dos Santos; Tiago Cavalcanti
  11. Enhancing Agricultural Productivity of CLMV Countries: Challenges and Agenda for Reforms By Rillo, Aladdin D.; Sombilla, Mercedita A.
  12. The banks that said no: banking relationships, credit supply and productivity in the United Kingdom By Franklin, Jeremy; Rostom, May; Thwaites, Gregory
  13. Human Resources and Innovation: Total Factor Productivity and Foreign Human Capital By Fassio, Claudio; Kalantaryan, Sona; Venturini, Alessandra
  14. Accounting for Labor Productivity Puzzle By Kateryna Bornukova
  15. The banks that said no: banking relationships, credit supply and productivity in the UK By Jeremy Franklin; May Rostom; Gregory Thwaites

  1. By: Maria Jose Aragon Aragon (Centre for Health Economics, University of York, UK.); Adriana Castelli (Centre for Health Economics, University of York, UK); James Gaughan (Centre for Health Economics, University of York, UK.)
    Abstract: In 2009, the NHS Chief Executive warned that a potential funding gap of £20 billion should be met by extensive efficiency savings by March 2015. Our study investigates possible drivers of differential Trust performance (productivity) for the years 2010/11-2012/13. Productivity is measured as Outputs/Inputs. We extend previous productivity work at Trust level by including a fuller range of care settings, including Inpatient, A&E and Community Care, in our output measure. Inputs include staff, equipment, and capital resources. We analyse variation in Total Factor and Labour Productivity with ordinary least squares regressions. Explanatory variables include efficiency in resource use measures, Trust and patient characteristics. We find productivity varies substantially across Trusts but is consistent across time. Larger Trusts are associated with lower productivity. Patient age groups treated is also found to be important. Foundation Trust status is associated with lower Total Factor Productivity, while treating more patients in their last year of life is surprisingly associated with higher Labour Productivity. Variation in productivity is persistent across years, and not fully explained by case-mix adjustment. A lack of convergence in productivity may indicate outstanding scope to improve Trust productivity based on mimicking the practises of the most productive providers.
    Keywords: Hospital, productivity indices, productivity variation
    Date: 2015–10
  2. By: Francesco Devicienti (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Elena Grinza (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy); Davide Vannoni (Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino, Italy)
    Abstract: In this paper, we explore the impact of part-time work on firm productivity. Using a large panel data set of Italian corporations’ balance sheets for the period 2000-2010, we first estimate the total factor productivity (TFP) of each firm for each year. We use different approaches aimed at solving input simultaneity, including a version of Ackerberg et al.’s (2006) control function approach, which accounts for firm fixed effects. We then match the TFP estimates with rich information on the firms’ use of part-time work obtained from survey data and estimate the impact of part-time work on TFP at the firm level. We find that an increase of 1 standard deviation in the part-time share reduces TFP by 2.03%. The results suggest that this harmful effect stems from horizontal rather than vertical part-time arrangements. We also find that firms declaring that they use part-time work to accommodate workers’ requests suffer the most. Moreover, we show that the so-called ‘flexible’ and ‘elastic’ clauses are successful in reducing the negative impact associated with part-time work.
    Keywords: Part-time work, Horizontal and vertical part-time contracts, Flexible and elastic clauses, Firm total factor productivity (TFP), Semiparametric estimation methods.
    JEL: L23 L25 J23
    Date: 2015–10
  3. By: Sara Calligaris (University of Rome \Tor Vergata" & EIEF)
    Abstract: Over the last two decades, total factor productivity (TFP) in Italy decreased by 0.2% per year, while increasing on average in the Euro-area countries. This decline suggests the existence of large inefficiencies in the allocation of resources, making the Italian case particularly interesting and suitable in order to study the role of misallocation. In this paper, I quantify the within-industry misallocation of inputs in Italy over the period 1993{2011, by applying the Hsieh and Klenow's (2009) methodology. Using a micro-level longitudinal dataset of Italian manufacturing firms, I find that, in the hypothetical absence of distortions, aggregate TFP in manufacturing would be boosted by 58% in 1993, by 67% in 2006 and by 80% in 2011. This leads to a twofold conclusion: first, misallocation plays a crucial role in determining the inefficiency level of the Italian manufacturing sector; second, misallocation has increased over time. Given the magnitude of the results obtained and the policy implications related thereto, I take a step ahead by checking to what extent the degree of misallocation can be attributed to specific characteristics of the Italian firms: it emerges that misallocation is higher for firms located in the South and at low-technological intensity, as well as for small or young firms.
    Keywords: Allocative ineffciencies, productivity slowdown, Manufacturing, CERVED dataset.
    JEL: D24 L60 O47
    Date: 2015–10–14
  4. By: Lei Chen (School of Business, Jianghan University, Wuhan, China, 430056); Rangan Gupta (Department of Economics, University of Pretoria); Zinnia Mukherjee (Department of Economics, Simmons College, 300 The Fenway, E-203J, Boston, MA 02115, USA); Peter Wanke (COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355. 21949-900 Rio de Janeiro)
    Abstract: In this paper, we address the question whether the technical efficiency of a fishing industry is affected by the determinants of ambient water quality of the aquatic ecosystem. Using zone specific data from 1998 – 2007 for the Connecticut Long Island Sound lobster fishery and an approach combining a bootstrapping technique with data envelopment analysis, we obtained the DEA estimates of technical efficiency for each fishing zone. We then used the bootstrapped-DEA results and Censored Quantile Regression to assess the impact of the environmental variables on different efficiency percentiles. A key result indicates when environmental conditionals are favorable (high dissolved oxygen levels) efficiency is low and when environmental conditionals are less favorable (high levels of nitrogen), efficiency is high. The results show that the intensity of significant impacts given the contextual variables may vary among high and low efficiency periods.
    Keywords: Technical efficiency, data envelopment analysis, censored quantile regression, lobster, harvest, Long Island Sound
    JEL: Q22 Q57
    Date: 2015–10
  5. By: Alex Bryson; John Forth
    Abstract: The 2008 Great Recession was notable in the UK for three things: the enormity of the output shock; the muted unemployment response; and the very slow rate of recovery. We review the literature which finds most of the decline in productivity is within sector and within firm before presenting new micro-analysis of workplace-level behaviour between 2004 and 2011 to gain insights into the processes that may have contributed to this aggregate picture. We find clear evidence of labour intensification but employers appeared incapable of turning this effort into improved workplace level productivity. Widespread pay freezes and cuts were often initiated in direct response to the recession. Workplace closure rates were little different to those experienced prior to the recession, but there is some evidence of a "cleansing" effect with poorer performing workplaces being more likely to close. There is some evidence of labour "hoarding", especially hoarding of high skilled labour: this has had no discernible impact on the rate of innovation. There is no impact of recession on either the number of HRM practices workplaces invested in, nor their returns on those investments. There is no evidence that workplaces have benefitted from Britain's "flexible" labour market as indicated by using recruitment channels used by welfare recipients or the use of numerically flexible workers. On the contrary, workplaces with increasing unionisation appeared to benefit in terms of improved workplace performance.
    Date: 2015–05
  6. By: Rebecca Riley; Chiara Rosazza-Bondibene
    Abstract: This paper exploits the introduction of the National Minimum Wage (NMW) in Britain and subsequent increases in the NMW to identify the effects of minimum wages on productivity. We find that the NMW increased average labour costs for companies that tend to employ low paid workers, both upon the introduction of the NMW and more recently following the Great Recession when many workers experienced pay freezes or wage cuts, but the NMW continued to rise. We find evidence to suggest that companies responded to these increases in labour costs by raising labour productivity. These labour productivity changes did not come about via a reduction in firms' workforce or via capital-labour substitution. Rather they were associated with increases in total factor productivity, consistent with organisational change, training and efficiency wage responses to increased labour costs from minimum wages.
    Date: 2015–05
  7. By: Rebecca Riley; Chiara Rosazza-Bondibene
    Abstract: In many larger advanced economies labour productivity growth slowed sharply and remained subdued for years after the credit crisis of 2007/08. Nowhere was this more obvious than in the UK. We examine the dynamics of productivity among British businesses that lie behind this stagnation. The most striking feature is the widespread weakness in total factor productivity within firms, pointing to the importance of a common factor in explaining productivity weakness. In addition, we find that the positive correlation between surviving firms' employment growth and their relative productivity ranking broke down after 2007/08, as would be expected if an adverse credit supply shock had caused inefficiencies in resource allocation across firms. Indeed, during the immediate recession years 2008/09, this shift was most apparent in sectors with many small and bank dependent businesses. But subsequently, while the contribution of external reallocation to aggregate productivity growth in 2010/13 was smaller than in previous years, this was not obviously associated with sectoral bank dependence. We illustrate the sensitivity of these findings to the choice of decomposition method.
    Date: 2015–05
  8. By: Giulia Canzian; Samuele Poy; Simone Schüller
    Abstract: This article analyzes the causal impact of advanced broadband accessibility on firm performance. We exploit a unique local policy intervention of a staged broadband infrastructure installation across rural municipalities in the Province of Trento (Italy), generating a source of exogenous (spatial and temporal) variation in the provision of next-generation broadband technology (ADSL2+). Employing a difference-in-differences strategy and using longitudinal firm-level data on annual balance sheet information of corporate enterprises, we show that ADSL2+ availability is associated with a significant increase in annual sales turnover of about 40 percent and an increase in value added of roughly 25 percent over the period of two years. The positive effect is found to be rather stable for different lengths of treatment exposure and across industrial sectors. However, no significant effects are found with respect to number of employees. Placebo estimations support a causal interpretation of our results. Overall, established corporate enterprises in ‘underserved’ rural and remote areas appear to profit considerably from enhanced broadband delivery programs in terms of economic performance.
    Keywords: broadband internet, firm performance, quasi experiment, regional development
    JEL: O33 J24 L24 L26
    Date: 2015–10
  9. By: Contessi, Silvio (Monash Business School)
    Abstract: Despite the microeconomic evidence supporting the superior idiosyncratic productivity of multinational firms (MNFs) and their affiliates, cross-country studies fail to find robust evidence of a positive relationship between foreign direct investment and growth. In order to study the aggregate implications of MNFs entry and production, I develop a dynamic general equilibrium model with firm heterogeneity where MNFs sort according to their own productivity. The entry and production of MNFs contribute to aggregate productivity growth at decreasing rates and affect domestic producers through general equilibrium effects in the labor market. I argue that the heterogeneous composition of the population of affiliates can help explain the conflicting evidence on the impact of foreign direct investment on growth.
    JEL: F21 F23 F41 F42
    Date: 2015–09–01
  10. By: Marcelo dos Santos (Insper); Tiago Cavalcanti (University of Cambridge)
    Abstract: In an economy in which the public sector is productive and factor inputs are rewarded according to their marginal productivity in both the public and the private sectors, the presence of a large government does not generate necessarily any allocation problem. When the provision of public infrastructure is below its optimal scale, then an increase in the size of the government can lead to an increase in total factor productivity (TFP). There is, however, a large body of evidence showing that for many countries the structure of wages and pensions and the labor law legislation are different for public and private employees. Such differences affect the occupational decision of agents and might generate some type of misallocation in the economy. We develop an equilibrium model with endogenous occupational choice, heterogeneous agents and imperfect enforcement to study the implications of an overpaid public sector. The model is estimated to be consistent with micro and macro evidence for Brazil and our counterfactual exercises show that public-private earnings premium can generate important allocation effects and sizeable productivity losses.
    Date: 2015
  11. By: Rillo, Aladdin D. (Asian Development Bank Institute); Sombilla, Mercedita A. (Asian Development Bank Institute)
    Abstract: Responding positively to economic reforms, the economies of Cambodia, the Lao People’s Democratic Republic, Myanmar, and Viet Nam (CLMV) have shown tremendous growth since the mid-1980s, including in their respective agriculture sectors. Recent developments, however, have brought into question the CLMV countries’ ability to sustain further increases in agricultural productivity given the slow pace of reforms and emerging challenges. Going forward, the reform agenda must go beyond the traditional view of expanding yields and supply of agricultural products for development gains in the sector to contribute to inclusive growth, poverty alleviation, and food security. This will require changing the market structures and regulatory policies that govern the sector.
    Keywords: agricultural productivity; clmv; agriculture policy
    JEL: Q10 Q21 Q28
    Date: 2015–10–20
  12. By: Franklin, Jeremy (Bank of England); Rostom, May (Bank of England); Thwaites, Gregory (Bank of England)
    Abstract: This paper uses a large firm-level data set of UK companies and information on their pre-crisis lending relationships to identify the causal links from changes in credit supply to the real economy following the 2008 financial crisis. Controlling for demand in the product market, we find that the contraction in credit supply reduced labour productivity, wages and the capital intensity of production at the firm level. Firms experiencing adverse credit shocks were also more likely to fail, other things equal. We find that these effects are robust, statistically significant and economically large, but only when instruments based on pre-crisis banking relationships are used. We show that banking relationships were conditionally randomly assigned and were strong predictors of credit supply, such that any bias in our estimates is likely to be small.
    Keywords: Credit shock; financial frictions; productivity puzzle; firm-level data
    JEL: D21 D22 D24 G21
    Date: 2015–10–09
  13. By: Fassio, Claudio (Lund University); Kalantaryan, Sona (Migration Policy Centre); Venturini, Alessandra (University of Turin)
    Abstract: The objective of this paper is to analyse the role of migrants in innovation in Europe. We use Total Factor Productivity as a measure of innovation and focus on the three largest European countries – France, Germany and the United Kingdom – in the years 1994-2007. Unlike previous research, which mainly employs a regional approach, we analyse the link between migration and innovation at the sectoral level. This allows us to measure the direct contribution of migrants in the sector in which they are actually employed. Moreover, it allows a distinction between the real contribution of migrants to innovation from possible inter-sectoral complementarities, which might as well foster innovation. We control for the different components of human-capital, such as age, education and diversity of origin. To address the possible endogeneity of migration we draw on an instrumental variable strategy originally devised by Card (2001) and adapt it at the sector level. The results show that overall migrants are relevant in all sectors, but some important differences emerge across sectors: highly-educated migrants show a larger positive effect in the high-tech sectors, while middle- and low-educated ones are more relevant in manufacturing. The diversity of countries of origin contributes to innovation only in the services sectors, confirming that in empirical analyses at the regional or national level the diversity measure might capture the complementarity between sectors rather than the contribution of different national skills.
    Keywords: migration, innovation, highly skilled migrants, low skilled migrants
    JEL: F22 O31 O32
    Date: 2015–10
  14. By: Kateryna Bornukova
    Abstract: In the recent decades aggregate labor productivity in the U.S. became countercyclical (labor productivity puzzle). At the same time the U.S. experienced dramatic changes in the structure of households due to increased female labor force participation. I show that changes in the household structure and corresponding changes in labor supply behavior can explain the labor productivity puzzle. I build a model with heterogeneous one- and two-earner households and aggregate technology shocks and calibrate it to the current U.S. data. I impose the household structure change in the model and show that the behavior of labor productivity changes from procyclical to countercyclical, as in the U.S. I also show that individual labor supply volatility depends on the role of the earner in the household. Increase in the proportion of multiple-earner households leads to increase in aggregate labor supply volatility.
    Keywords: business cycles, family labor supply, multiple-earner households
    JEL: C68 E32 E24 J22
    Date: 2015–05
  15. By: Jeremy Franklin (Bank of England); May Rostom (Bank of England; University College London (UCL)); Gregory Thwaites (Bank of England; Centre for Macroeconomics (CFM))
    Abstract: This paper uses a large firm-level dataset of UK companies and information on their pre-crisis lending relationships to identify the causal links from changes in credit supply to the real economy following the 2008 financial crisis. Controlling for demand in the product market, we find that the contraction in credit supply reduced labour productivity, wages and the capital intensity of production at the firm level. Firms experiencing adverse credit shocks were also more likely to fail, other things equal. We find that these effects are robust, statistically significant and economically large, but only when instruments based on pre-crisis banking relationships are used. We show that banking relationships were conditionally randomly assigned and were strong predictors of credit supply, such that any bias in our estimates is likely to be small.
    Date: 2015–10

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