Capital Investment and Labor Demand

E Curtis, Daniel G. Garrett, Eric Ohrn, Kevin A. Roberts and Juan Carlos Suárez Serrato

Working Papers from U.S. Census Bureau, Center for Economic Studies

Abstract: We study how bonus depreciation, a policy designed to lower the cost of capital, impacted investment and labor demand in the US manufacturing sector. Difference-in-differences estimates using restricted-use US Census Data on manufacturing establishments show that this policy increased both investment and employment, but did not lead to wage or productivity gains. Using a structural model, we show that the primary effect of the policy was to increase the use of all inputs by lowering overall costs of production. The policy further stimulated production employment due to the complementarity of production labor and capital. Supporting this conclusion, we nd that investment is greater in plants with lower labor costs. Our results show that recent policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.

Keywords: capital-labor substitution; bonus depreciation; corporate taxation (search for similar items in EconPapers)
JEL-codes: D22 H25 H32 J23 (search for similar items in EconPapers)
Pages: 110 pages
Date: 2022-02
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-eff and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www2.census.gov/ces/wp/2022/CES-WP-22-04.pdf First version, 2022 (application/pdf)

Related works:
Working Paper: Capital Investment and Labor Demand (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cen:wpaper:22-04

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