Multifactor Productivity Growth, Imperfect Competition and Economies of Scale

Abstract

In this paper, we explore both theoretically and empirically a framework where we integrate possible labour market rigidities and imperfect output market behaviour into the analysis and measurement of multifactor productivity growth (MFPG). Embedding Hall's(1990) efficient bargaining model, which introduces a substantial degree of labour market imperfections, we show that rigidities and frictions in the labour market might be crucial for understanding the firms' marginal costs and their price setting behaviour. We apply this analysis to 22 industries in Dutch manufacturing for the period 1989-2005.