Labor reallocation and productivity growth

Abstract

Total productivity grows through technological progress orreallocation of resources. This paper analyses their contribution toeconomic growth by decomposing economy-wide and sectoralproductivity changes into reallocation of labor and internalproductivity growth using Korean firm-level data. The main finding isthat inter-sector reallocation of labor negatively contributes toproductivity growth as employment moves to service sectors with lowproductivity, but this is offset by industrial technological progress. Onthe other hand, intra-sector decomposition of productivity growthshows that both reallocation of labor input across firms within anindustry and productivity improvement of firms make positivecontributions to the productivity growth.