The sources and consequences of productivity differences.

• Author: Syverson, Chad
• Position: Research Summaries

Economists have consistently found both large and persistent differences in measured productivity across producers, even within narrowly defined industries. The size of these differences is striking: for instance, within U.S. 4-digit SIC manufacturing industries (such as saw blade manufacturing), the plant at the [90.sup.th] percentile of the industry's productivity distribution typically obtains almost twice as much output with the same measured inputs as the plant at the [10.sup.th] percentile of productivity. (These figures, and all those described below, use total factor productivity measures. They reflect the amount of output that a producer obtains from a given combination of labor, capital, and intermediate inputs.) And U.S. manufacturing is not exceptional in this regard; in fact, researchers have documented even larger dispersion in other sectors and countries.

The observed persistence of producers' productivity levels indicates that industries typically contain both firms that appear to have figured out their business and those that are woefully lacking in such knowledge. Far more than bragging rights are at stake, because higher productivity producers are more likely to survive than their less efficient industry competitors.

The discovery of these ubiquitous, large, and persistent productivity differences has shaped research agendas in a number of fields, including (but not limited to) macroeconomics, corporate finance, industrial organization, labor, and trade. I have studied various aspects of the sources and consequences of productivity dispersion as a part of my research agenda; this essay summarizes that work.

Two Sources of Productivity Differences

In a recent survey article, I review the research over the past decade that has sought to explain the sources of observed productivity differences (1) I split the explanations into two categories. One includes factors that operate within the plant or firm and which directly affect productivity at the producer level. These are the "levers" that management or others potentially can use to influence productivity. The second category includes forces that are external to the firm: elements of the industry or market environment that can induce productivity changes or support productivity dispersion. I have researched factors in both categories.

Levers that Influence Productivity

On the "lever" side of the ledger, Steven Levitt, John List, and I look at the mechanisms that underlie learning by doing -- productivity gains achieved through the very act of producing. (2) Using extremely detailed data from an assembly plant of a major auto producer, we find that productivity gains from learning arrive quickly and in force. Defects per vehicle fall by more than 80 percent in the first eight weeks of production. Interestingly, when the plant's second shift comes on line at this point, the...