Difference: TrueSpread (r7 vs. r6)

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Title Computing the True Spread
AuthorRalf Martin
Year 2005
Abstract How much of the observed labour productivity spread is real? This paper proposes a novel frameworkto calculate productivity differences between plants accounting for imperfect competition, variationsin output prices across plants, endogeneity of factor inputs and measurement error in labour inputs.For UK manufacturing as a whole I find that on average 59 percent of the labour productivity spreadis explained by a combination of technical efficiency variations and differences in consumervaluations. Measurement error accounts on average for 9 percent of labour productivity spreads. Thepaper argues that standard TFP calculations lead to a systematic under-estimation of welfare relevantdifferences across businesses.
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