The Sources of Capital-Labor Substitutability

Laurence Ales, Brian Kovak, Hakki Ozdenoren and Kate Whitefoot
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Laurence Ales: Carnegie Mellon University
Hakki Ozdenoren: Carnegie Mellon University
Kate Whitefoot: Carnegie Mellon University

No 1201, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We study detailed engineering process-based cost models (PBCM). We use such models to determine the primitive sources responsible for the emergence of capital-labor substitutability at plant level. We make theoretical and quantitative contributions. On the theoretical side, we provide a framework to study PBCMs and we identify two fundamental drivers of substitutability across factors of productions: (i) uncertainty and adjustment frictions in the production process; (ii) heterogeneity of production lines. On the quantitative side, we use a novel dataset containing detailed plant-level production data on automobile assembly to determine the quantitative relevance of the channels driving factor substitutability.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:1201

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