The Dynamics of Plant-level Productivity in the U.S.

This paper applies the insights of the literature on idiosyncratic shocks to inividual labor productivity to the dynamics of plant-level total factor productivity. Recent work in I.O. has emphasized the importance of firm- and plant-level heterogeneity in total factor productivity. Most of the work on plant- or firm-level productivity has focused on specific industries and used only cross-sectional data. Using the methodology of Olley and Pakes (1996) to incorporate exit decisions in the estimation procedure, we estimate establishment-level productivity using a unique longitudinal data set that covers covers the entire U.S. manufacturing sector from 1975 until 2001. Then we characterize the time series properties of establishment-level idiosyncratic shocks to productivity, taking into account aggregate economy-wide and industry-level shocks. This provides an opportunity to compare the persistence and volatility of the idiosyncratic shocks to those of aggregate productivity shocks estimated from aggregate data. Finally, this data set and methodology provide an opportunity to test the implications of different theories of firm dynamics.