Labour‐use efficiency in Swedish social insurance offices

This paper considers the estimation of frontier production functions in panel data models. It proposes a multi‐stage method to obtain estimates of (1) the parameters of a flexible input requirement function and (2) technical inefficiency decomposed into time‐invariant (firm‐specific), time‐varying, and the residual components. The proposed method is used to analyse labour‐use efficiency of Swedish local social insurance offices on the basis of a large panel of observations during the time period 1974–84. Empirical results show: (1) substantial variations in labour‐use efficiency among these offices, with the mean efficiencies declining over time; (2) presence of economies of scale, thereby meaning that most of the offices were of suboptimal size.