Pitfalls of productivity convergence tests using firms’ microdata

This study investigates firm-level productivity convergence in Italy over the period 2012–2020, focusing on conditional firm-level convergence in productivity growth and the role of firm size and growth patterns. Using a unique employer–employee dataset, we construct labour quality indicators—including education, age composition, and employment characteristics—to capture firm heterogeneity affecting convergence. The results indicate conditional convergence, with smaller firms catching up more rapidly under favorable workforce and structural conditions. Firms that move to higher size classes tend to experience productivity improvements and an enhanced capacity to narrow the gap with frontier firms. However, barriers to size growth persist, particularly in services. These firm-level convergence dynamics coexist with weak aggregate productivity performance, suggesting that micro-level catch-up does not necessarily imply broad macroeconomic convergence. The findings highlight the importance of policies aimed at strengthening workforce skills, reducing structural obstacles to firm growth, and encouraging strategic resource allocation to support sustained productivity improvements.