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.
Authors
- DOI
- https://dx.doi.org/10.1596/1813-9450-10739
- Disclosure Date
- 2024/03/27
- Disclosure Status
- Disclosed
- Doc Name
- The Role of Firm Dynamics in Aggregate Productivity, Job Flows, and Wage Inequality in Ecuador
- Originating Unit
- Off of Sr VP Dev Econ/Chief Econ (DECVP)
- Product Line
- Advisory Services & Analytics
- Published in
- United States of America
- Rel Proj ID
- EC-Ecuador Country Economic Memorandum -- P177973
- Sector
- Central Government (Central Agencies)
- Series Name
- Policy Research working paper ; no. WPS 10739; PROSPERITY;
- TF No/Name
- TF0B9516-Trade-LAC-IBRD- Trade Facility
- Theme
- Inclusive Growth,Job Creation,Human Development and Gender,Economic Policy,Green Growth,Economic Growth and Planning,Private Sector Development,Regulation and Competition Policy,Labor Market Policy and Programs,Active Labor Market Programs,Jobs,Business Enabling Environment,Structural Transformation and Economic Diversification
- Unit Owning
- EFI-LCR-MTI-MacroFiscal (ELCMU)
- Version Type
- Final
- Volume No
- 1