What is Output Elasticity of Labor

This chapter provides basic understanding of firm performance in emerging markets by focusing on labor productivity and total factor productivity. In the study, labor productivity is measured in terms of average value added per worker. Total factor productivity is obtained from estimations of Cobb-Douglas production function where value added is a function of labor and capital. Data is obtained from the firm-level Enterprise Surveys by the World Bank. According to the results, differences in average labor productivities are significant among the sectors within each emerging region. Also, the value of factor elasticities changes across sectors as well as across regions. Moreover, the elasticity of capital is lower than the elasticity of labor for all sectors in regions. It implies that labor plays a more significant role and the firms are operating in a more labor-intensive production process in emerging markets.