Working Paper: NBER ID: w28008
Authors: Diego A. Comin; Javier Quintana Gonzalez; Tom G. Schmitz; Antonella Trigari
Abstract: We compute new estimates for Total Factor Productivity (TFP) growth in the United States and in five European countries. Departing from standard methods, we account for positive profits and use firm surveys to proxy for unobserved changes in factor utilization. These novelties have a major impact, especially in Europe, where our estimated TFP growth series are less volatile and less cyclical than the ones obtained with standard methods. Based on our approach, we provide annual industry-level and aggregate TFP series, as well as the first estimates of utilization-adjusted quarterly TFP growth in Europe.
Keywords: Total Factor Productivity; TFP Growth; Capacity Utilization; Economic Shocks
JEL Codes: E01; E30; O30; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| traditional methods (zero profits) (L19) | underestimate output elasticities of labor and materials (E23) |
| traditional methods (zero profits) (L19) | overestimate elasticity of capital (D24) |
| positive profits (D33) | accurate measurement of output elasticities for labor and materials (E23) |
| accurate measurement of output elasticities for labor and materials (E23) | TFP growth estimates (F17) |
| capacity utilization surveys (E23) | better proxy for unobserved changes in worker effort (J29) |
| better proxy for unobserved changes in worker effort (J29) | more reliable TFP growth estimates (O49) |
| incorporation of profits and robust utilization proxy (L25) | significant differences in TFP growth rates (O49) |
| utilization-adjusted TFP measures (O49) | less volatile and cyclical than traditional methods (C58) |
| economic downturns (F44) | less dramatic decrease in TFP (O49) |