Productive Efficiency and Region

Abstract

Based on estimates of Cobb-Douglas production function, this study has found that significant spatial variation in labor productivity exists even after adjusting for capital intensity. The adjustment for capital intensity reduces the regional variation by 38 to 69% and the ciy-size variation by 75%. The results reveal a 6 to 8% producitivity advantage for non-South Census Regions relative to the South and productivity increases of 1.5% with each doubling of SMSA population. Nevertheless, lower wages in the South (and in smaller cities) make it (and them) an attractive location for manufacturing firms. The study has also found that the Sveikauskas conjecture that labor productivity can be substituted for Hicks-neutral productivity in an analysis of the latter is false, if metropolitan data are used. By so doing, capital intensity effects and total factor productivity effects are confounded. To study spatial variations in total factor productivity (productive efficiency) it is necessary to control for spatial variations in captial intensity. The results of this study indicate that absent better data on capital, the approach offered by Aberg yields satisfactory results. 14 references, 2 tables.