Why Are Some Regions So Much More P roductive than Others?
Abstract:
Differentials in aggregate labor productivity acr
oss regions could be due to differences (1) in workers’ skills (2) in firms
’ technologies (3) in how efficiently skills and technologies are matched a
nd (4) in institutional factors specific to each region. I introduce a fram
ework to separately identify each determinant using matched employer-employ
ee data. I estimate skills by comparing the wages of each worker with co-wo
rkers in the same firm and in the same region; technologies by comparing th
e productivity of firms with same workforce’s skills and in the same region
. I estimate positive complementarities between skill and technology by mea
suring how workers and firms jointly contribute to productivity in the same
region through a model of the aggregate production function. Finally, I di
sentangle region-specific factors from technologies since some firms have p
lants in more than one region. In an application to the Italian regions, I
find that differences in firms’ technologies and in region-specific factors
account respectively for 60% and 35% of the large productivity differentia
ls. In contrast, no contribution is due to differences in the distribution
of skills, since they are close to zero and do not change with the migratio
n of workers. Also, under optimal assignment of workers productivity differ
ences do not increase, but productivity level rises by around 20%.