Why Do Management Practices Differ across Firms and Countries?

E conomists have long puzzled over the astounding differences in productivity between fi rms and countries. For example, looking at disaggregated data on U.S. manufacturing industries, Syverson (2004a) found that plants at the 90 percentile produced four times as much as the plant in the 10 percentile on a per-employee basis. Only half of this difference in labor productivity could be accounted for by differential inputs, such as capital intensity. Syverson looked at industries defi ned at the four-digit level in the Standard Industrial Classifi cation (SIC) system (now the North American Industry Classifi cation System or NAICS) like “Bakeries and Tortilla Manufacturing” or “Plastics Product Manufacturing.” Foster, Haltiwanger, and Syverson (2008) show large differences in total factor productivity even within very homogeneous goods industries such as boxes and block ice. Some of these productivity differences across fi rms and plants are temporary, but in large part they persist over time. At the country level, Hall and Jones (1999) and Jones and Romer (2009) show how the stark differences in productivity across countries account for a substantial fraction of the differences in average per capita income. Both at the plant level and at the national level, differences in productivity are typically calculated as a residual—that is, productivity is inferred as the gap between output and inputs that cannot be accounted for by conventionally measured inputs. Why Do Management Practices Differ across Firms and Countries?