Multi-Plant Firms, Variable Capacity Utilization, and the Aggregate Hours Elasticity

Domenico Ferraro and Damian Pierri
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Domenico Ferraro: Arizona State University

No 341, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: We develop an equilibrium business cycle model of multi-plant firms with perfectly competitive product and labor markets. Plant-level production features a minimumlabor requirement, leading to occasionally binding capacity constraints at the firm level. The aggregate production function is kinked, displaying constant returns toscale when the economy is below capacity and decreasing returns when at capacity. We calibrate the model to U.S. data and show that the effects of distorting taxes are highly nonlinear and state-dependent, varying systematically with the state of the business cycle. The aggregate hours elasticity is higher in recessions and decreases with the size of the labor tax cut. Moreover, it differs from the structural preference parameter determining the individual-level labor supply elasticity.

Keywords: Minimum labor requirement; Hours constraints; Capacity utilization; State dependence; Labor taxes; Aggregate hours elasticity (search for similar items in EconPapers)
JEL-codes: E22 E23 E24 E32 E62 H24 H25 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2024-10
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:aoz:wpaper:341

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