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Profitability, Employment and Structural Adjustment in France

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  • Pentti J.K. Kouri
  • Jorge Braga de Macedo
  • Albert J. Viscio

Abstract

In this paper, we present a dynamic model which explains output, enployment and energy consumption in the French manufacturing sector in terms of the expectedand actual path of wage rates and energy prices in units of output. The modelhas two distinguishing features: First, the rate of capacity utilization isdetermined explicitly from profit-maximizing behavior and it is viewed as the crucial adjusting variable in the short run. Second, we assume complete lack of substitutability between capital, labor and energy inputs ex post.The model is motivated by a brief discussion of French growth, focusing on the decline of profitability and employment in manufacturing, and simulated using annual data from 1950 to 1979. The wage explosion and the energy shock of the early seventies are interpreted (in a model allowing for overhead labor) in terms of changes in expected real factor prices,and their effects on the utilizationand the profitability of each vintage are quantified. Aggregating over vintages,the model generates the observed decline in profitability and utilization of existing capacity. The results of the simulation are very encouraging, and a simultaneous estimation of the model under static expectations is rejected by the data. There are two limitations of the analysis which will be relaxed in further work. Investment is exogenous and open-economy aspects only appear indirectly, say via constraints on the energy price and the price of output.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1005.

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Date of creation: Oct 1982
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Publication status: published as Kouri, Pentti J.K., Jorge Braga de Macedo, and Albert J. Viscio. "Profitability, Employment and Structural Adjustment in France." Annales De I'Insee, Nos. 47-48, (December 1982), pp. 85-112.
Handle: RePEc:nbr:nberwo:1005

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  1. Schwartz, Anna J, 1973. "Secular Price Change in Historical Perspective," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 5(1), pages 243-69, Part II F.
  2. Anderson, G J, 1981. "A New Approach to the Empirical Investigation of Investment Expenditures," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(361), pages 88-103, March.
  3. Zvi Griliches, 1998. "Comparing Productivity Growth: An Exploration of French and U.S. Industrial and Firm Data," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 157-186 National Bureau of Economic Research, Inc.
  4. Bean, Charles R, 1981. "An Econometric Model of Manufacturing Investment in the UK," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 91(361), pages 106-21, March.
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Cited by:
  1. Gilad D. Aharonovitz & Nathan Skuza & Faysal Fahs, 2009. "Can Integrity Replace Institutions? Theory and Evidence," CESifo Working Paper Series 2730, CESifo Group Munich.

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