The Role of Firm Dynamics in Aggregate Productivity, Job Flows, and Wage Inequality in Ecuador

This paper examines the role of firm dynamics in aggregate total factor productivity, job flows, and wage inequality in Ecuador. Utilizing a comprehensive employer-employee dataset, the paper documents firm dynamics and job flow patterns that are consistent with the presence of market distortions. Also, the paper identifies factor misallocation as the main contributor to Ecuador's total factor productivity deceleration. Given these trends, the paper explores allocative inefficiency drivers through firm- and industry-level regressions. Firms in the top productivity quintile face distortive non-wage labor costs that are 3.7 times higher than the bottom quintile, after controlling for firm size and age. The findings also provide evidence of credit misallocation across firms. Additionally, industries with higher job mobility, credit access, and competition and lower non-wage labor costs, minimum wage incidence, and zombie firms demonstrate higher allocative efficiency. Moreover, worker-level regressions indicate that misallocation drivers explain up to 41 percent of wage inequality, with non-wage labor costs and product market frictions as distortions driving this inequality.

Bibliographic Details

Main Authors:	Patiño Peña, Fausto, Ferro, Esteban
Format:	Working Paper biblioteca
Language:	English en_US
Published:	Washington, DC: World Bank 2024-03-27
Subjects:	FIRM PERFORMANCE, AGGREGATE PRODUCTIVITY, JOB FLOWS, WAGE INEQUALITY,
Online Access:	http://documents.worldbank.org/curated/en/099210003272435670/IDU12ee097181a742148c01b05d15e384067ed0a https://hdl.handle.net/10986/41297
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