Labor productivity is better measured by value added per employee than by sales (or profits) per employee, since value added considers only the economic activities that occur within a firm, and disregards the amount of its purchased inputs. On-going debate about the relative efficiency of large and small firms also makes desirable the detailed scrutiny of value added per employee in firms of different sizes. The report uses 1979 economywide data (the most recent available at the time of writing) from the U.S. Internal Revenue Service (IRS) to measure value added per employee in 12 highly aggregated economic activities and in 47 more disaggregated ones. The research examines six size classes of firms. Findings show that in most activities, small firms are at least as productive as larger firms in terms of value added per employee. In industries in which capital intensity accompanies prominent economies of scale.
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