Productivity and Reallocation: Evidence from the Universe of Italian Firms

This article investigates the contribution of allocative efficiency to aggregate labour productivity growth in Italy between 2005 and 2013. Exploiting a unique dataset that covers the universe of firms, we find that allocative efficiency increased during the period of observation. We show that the dynamics of aggregate labour productivity benefited from the reallocation of resources among continuing firms and from the net effect of business demography. Among industries, we find that reallocation has been stronger in industries that are more exposed to import competition from developing countries. Moreover, we document that the observed adjustments have not evenly affected all firms across the productivity distribution: selection has become tougher for firms belonging to the lower tail, forcing the exit of the least productive firms and favoring the reallocation of the workforce to the best performing ones. Thanks to the increasing availability of firmlevel data, a growing theoretical and empirical