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

Matthias Mertens and Benjamin Schoefer

No 33172, NBER Working Papers from National Bureau of Economic Research, Inc

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: E0 J0 L0 M0 O0 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-eff and nep-lab
Note: CF EFG IO ITI LS ME PR
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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)
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