4.1  Benchmark results (continued)

As outlined in Section 3 the GR decomposition is often preferred to the FHK decomposition. Figure 4 shows the GR decomposition for the aggregate. The within, entering and exiting components for this decomposition are very similar to those of the FHK decomposition. The between component, however, is essentially a combination of the cross and between components from the FHK decomposition.

The pattern here is similar to that presented earlier in this section. On average continuing firms make positive contributions to labour productivity growth as do exiting firms. On average entering firms subtract from labour productivity growth in their first year of life.

Figure 4 – GR aggregate decomposition, 1995-2003

Table 5 shows GR decompositions for eight industries and the aggregate. The pattern here is similar to that shown in Table 3 with continuing firms in all industries making positive contributions to labour productivity growth. The main difference relates to the way continuing firms’ contributions to labour productivity growth are apportioned across different components. The GR decomposition tends to put more weight on the within component than the FHK decomposition and the between component here is a combination of the cross and between components of the FHK decomposition. The between component is negative for most industries, however, this is not surprising as entering firms become continuing firms in their second year of life. These firms are likely to experience increases in both labour productivity and their labour input shares while maintaining below average labour productivity for some time. For further analysis of the between component and the labour productivity of entering firms refer to sections 5 and 6.

Notes – All numbers are percentages and are the arithmetic averages of yearly observations between 1995 and 2003. The entering, exiting, within and between components sum to the totals for each of the industries and the aggregate respectively.

The percentages of firms making positive contributions to their respective GR components are given in Table 6 for eight industries and the aggregate. The pattern here is similar to that shown in Table 4, with most exiting firms adding to labour productivity growth, most entering firms subtracting from labour productivity growth and around half of all continuing firms experiencing increases in labour productivity between consecutive years. See Appendix Table 2 for the total contributions to the various GR decomposition components from both positively and negatively contributing firms.

Notes – All numbers are percentages and are the arithmetic averages of yearly observations between 1995 and 2003.

As discussed in section 3, both the FHK and the GR decompositions can be modified so that continuing and entering firms’ labour productivity is compared relative to the average labour productivity of exiting firms. The FHK and GR decompositions relative to exiting firms for eight industries and the aggregate are shown in Appendix Tables 3 and 5. It is interesting that for most industries as well as the aggregate the entering component is still negative. This means that entering firms on average have lower labour productivity than the average for exiting firms.

The percentages of firms making positive contributions to their respective FHK(X) and GR(X) decomposition components are given in Appendix Tables 4 and 6 respectively. As expected the percentages of firms making positive contributions to the between and entering components are now higher since the mean of exiting firms’ labour productivity is lower than the mean for all firms.