Decomposing productivity differential among groups of firms: a novel inequality decomposition

Using the idea of the multidimensional generalization of the Duncans’ index (Silber 1992), the productivity per worker differentials across groups of firms can be decomposed into different components attributed to differences in: sectoral productivity, investment in human and physical capital, size and other determinants. More specifically, for decomposing group productivity differentials we propose an Oaxaca’s decomposition – based approach which assumes a Reimer’s weighting scheme. An application of the decomposing method aimed at evaluating productivity differences across foreign owned and domestic firms in the Italian manufacturing sector is also provided.