The Joint Dynamics of Capital and Employment at the Plant Level

Ryan Michaels
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Ryan Michaels: University of Rochester

No 1189, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: This paper uses plant-level data to document the joint adjustment of capital and employment. The data are analyzed through the lens of a model that integrates features from influential theories of costly capital and labor adjustment. Although the model is rich enough to account for several dimensions of individual factor dynamics, complementarity of the factors implies a strong restriction on their joint adjustment: investment ought to perfectly predict employment growth (Dixit, 1997). In contrast, 42 percent of gross capital accumulation in our data occurs at times when employment falls. The paper considers several extensions to the baseline model, but the key prediction is robust to, among other considerations, the introduction of delivery lags, alternative adjustment costs, and standard theories of factor-biased technical change. To engage the data, the paper finds that a more fundamental change in production technology might be needed, namely, a production function in which machinery directly replaces labor in certain tasks. The paper concludes by illustrating the macroeconomic implications of its findings.

Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:1189

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