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Input cost, capacity utilization and substitution in the short run

  • Miguel A. Delgado

    ()

    (Universidad Carlos III de Madrid, Calle Madrid 126, E-28903 Getafe, Madrid, Spain FIE-FEP, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain FIE-FEP-UNED, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain)

  • Jordi Jaumandreu

    ()

    (Universidad Carlos III de Madrid, Calle Madrid 126, E-28903 Getafe, Madrid, Spain FIE-FEP, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain FIE-FEP-UNED, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain)

  • Ana Martín Marcos

    ()

    (Universidad Carlos III de Madrid, Calle Madrid 126, E-28903 Getafe, Madrid, Spain FIE-FEP, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain FIE-FEP-UNED, Pza. Marqués de Salamanca 8, E-28006 Madrid Spain)

This article studies the behavior of input cost shares in an environment where labor is costly to adjust, materials can be adjusted at no cost and capital is fixed. A model relating cost shares with relative prices and adjustment costs is proposed, allowing joint estimation of the elasticity of substitution and the adjustment cost function, which is an unknown function of the capacity utilization. Based on a panel of more than 700 manufacturing firms, we find evidence of strong input share variations according to the degree of capacity utilization. The estimated shapes of adjustment costs curves of labor are in agreement with our theoretical model, and we obtain sensible elasticities of substitution estimates. Based on such estimates, we find evidence of a negative (positive) bias in downturns (recoveries) in conventional productivity growth measures.

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Article provided by Springer & Spanish Economic Association in its journal Spanish Economic Review.

Volume (Year): 1 (1999)
Issue (Month): 3 ()
Pages: 239-262

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Handle: RePEc:spr:specre:v:1:y:1999:i:3:p:239-262
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  1. Catherine J. Morrison, 1985. "Productivity Measurement with Nonstatic Expectations and Varying Capacity Utilization: An Integrated Approach," NBER Working Papers 1561, National Bureau of Economic Research, Inc.
  2. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Editors' introduction," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 1-5.
  3. Miguel A. Delgado & Juan Mora, 1995. "On asymptotic inferences in non-parametric and semiparametric models with discrete and mixed regressors," Investigaciones Economicas, Fundación SEPI, vol. 19(3), pages 435-467, September.
  4. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
  5. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
  6. Slade, Margaret E., 1986. "Total-factor-productivity measurement when equilibrium is temporary : A Monte Carlo assessment," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 75-95.
  7. Daniel S. Hamermesh, 1993. "Labor Demand and the Source of Adjustment Costs," NBER Working Papers 4394, National Bureau of Economic Research, Inc.
  8. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July.
  9. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275.
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