LABOR-USE EFFICIENCY IN SWEDISH SOCIAL INSURANCE OFFICES

This paper considers the estimation of frontier production functions i n panel data models. It proposes a multi-stage method to obtain estima tes of (1) the parameters of a flexible input requirement function and (2) technical inefficiency decomposed into time-invariant (firm-speci fic), time-varying, and the residual components. The proposed method i s used to analyse labour-use efficiency of Swedish local social insura nce offices on the basis of a large panel of observations during the t ime period 1974-84. Empirical results show: (1) substantial variations in labour-use efficiency among these offices, with the mean efficienc ies declining over time; (2) presence of economies of scale, thereby m eaning that most of the offices were of suboptimal size.