Adjustment Costs and Factor Demand: New Evidence From Firms Real Estate

Antonin Bergeaud and S.Ray

Working papers from Banque de France

Abstract: Adjustment costs impair the optimal allocation of production factor across firms. In this paper, we use the cost associated with corporate relocation to explore the effect of the adjustment costs of the premises size on factor demand. We rely on the tax on realized capital gains on real estate asset, which entails varying real estate adjustment costs across firms, to empirically study the effect of these frictions on firms' behaviour. We develop a general equilibrium model, with heterogeneous firms, that sheds light on the implication of the level of the fixed costs associated with the adjustment of real estate on the change in firms' labor demand following productivity shocks. This model predicts that employment growth of firms facing positive productivity shocks shrinks with the level of the frictions. Confronting these results using French firm-level data over the period 1994-2013, we find that higher adjustment costs constrain relocation and reduce job creation of the most dynamic firms. The highlighted frictions have noticeable macroeconomic effects.

Keywords: Corporate real estate; Firms' relocation; Adjustment costs; Misallocation of resources. (search for similar items in EconPapers)
JEL-codes: D21 D22 H25 J21 O52 R30 (search for similar items in EconPapers)
Pages: 66 pages
Date: 2017
New Economics Papers: this item is included in nep-bec, nep-dge, nep-eff, nep-lma and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Adjustment Costs and Factor Demand: New Evidence from Firms’ Real Estate (2021)
Working Paper: Adjustment costs and factor demand: new evidence from firms' real estate (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:641

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