Dynamics of Factor Productivity Dispersions

This paper documents a new set of stylized facts on the joint distribution of labor and capital productivity across plants. We exploit panel data from Germany, Chile, Colombia and Indonesia and show that the basic patterns are similar in all economies. Decomposing factor productivities into high and low frequency movements, we reveal two new stylized facts. First, factor productivities are positively correlated at high frequency, while they are negatively correlated at low-frequency. Second, differences in factor productivity dispersions across countries are mostly at high frequency, while at low frequency the dissimilarity is rather small. We suggest a new structural explanation for productivity dispersions based on putty-clay technology. Our model implies the coexistence of different technologies at any point in time, which gives rise to productivity dispersions. We demonstrate that this model is able to explain our new stylized facts.