ABSTRACT
In this chapter, the author outlines the conditions under which it becomes possible for differentials in productivity among identical firms producing identical products to be sustained in the competitive long run. In this case, interfirm, interregional, and international productivity and wage differentials can be a product of differences in preferences across firm hierarchies. In this manner interfirm differences in labor productivity are introduced. Nevertheless, one would still expect that interfirm differences in wages in firms producing the same output would be characterized by differences in labor productivity and that relative increases in wages among such firms would result in changes in relative labor productivity due to the effect of wages on x-inefficiency. Therefore, conceptually one must distinguish between differences and changes in labor productivity due to the impact of the wage variable on identical firms located in different regions or nations and those that are a function of interregional and international differences or variations in product mix.
