From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony

Matthias Mertens and Benjamin Schoefer

No 19719, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We document and dissect a stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this regularity in firm data for Germany and in firm (and industry) data for 11 (20) additional countries, and also in response to exogenous product demand shocks. We explain this regularity through a parsimonious model with two features: (i) an elasticity of substitution between intermediates and labor above one, and (ii) an increasing shadow price of labor (monopsony or adjustment costs). Our firm growth regressions identify a labor-intermediates substitution elasticity between 1.8 and 4.2. Labor-intermediates substitution also accounts for much of the labor share decline that we document accompanies firm and industry growth.

JEL-codes: E2 J00 L00 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-com and nep-eff
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP19719 (application/pdf)

Related works:
Working Paper: From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony (2024)
Working Paper: From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony (2024)
Working Paper: From labor to intermediates: Firm growth, input substitution, and monopsony (2024)
Working Paper: From labor to intermediates: Firm growth, input substitution, and monopsony (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19719

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19719

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().