Pitfalls of productivity convergence tests using firms’ microdata

This study investigates productivity convergence among firms, focusing on two key questions: the extent of conditional convergence in productivity growth and the role of firm size and growth patterns in shaping these dynamics. Using a unique employee-employer dataset, we derive detailed labor quality indicators—including education, age, and employment contracts—as conditional effects influencing convergence trends. The results confirm strong evidence of conditional convergence, with smaller firms catching up more rapidly under favorable workforce and structural conditions. Additionally, smaller firms that climb the size ladder experience significant productivity gains and an enhanced capacity to narrow the gap with frontier firms. However, barriers to size growth persist, particularly in services. Larger firms, while benefiting from economies of scale, face diminishing returns in leveraging size for productivity improvements. These findings highlight the importance of policies to enhance workforce skills, reduce structural barriers to firm growth, and incentivize strategic resource allocation for sustained productivity gains. JEL Classification : J24, O4, L25