Connecting the Two Approaches

Productivity analysis is carried out at various levels of aggregation. In microdata studies the emphasis is on individual firms (or plants), whereas in sectoral studies it is on (groupings of) industries. Microdata researchers do not care too much about the interpretation of the weighted means of firm-specific productivities employed in their analyses. In this chapter the consequences of this attitude are explored, based on a review of the literature. However, a structurally similar phenomenon happens in sectoral studies, where the productivity change of industries is compared to each other and to the productivity change of some next-higher-level aggregate, which is usually the (measurable part of the) economy. Though there must be a relation between sectoral and economy-level measures, in most publications by statistical agencies and academic researchers this aspect is more or less neglected. The point of departure of this chapter is that aggregate productivity should be interpreted as productivity of the aggregate. It is shown that this implies restrictive relations between the productivity measure, the set of weights, and the type of mean employed.