Does Input Quality Drive Measured Differences In Firm Productivity?

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Executive Summary

Firms in the same industry can differ in measured productivity by multiples of 3. Griliches (1957) suggests one explanation: the quality of inputs differs across firms. The authors add labor market history variables such as experience and firm and industry tenure, as well as general human capital measures such as schooling and sex. They also use the wage bill and worker fixed effects. They show adding human capital variables and the wage bill decreases the ratio of the 90th to 10th productivity quintiles from 3.27 to 2.68 across eight Danish manufacturing and service industries.

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