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Multi-Plant Firms, Variable Capacity Utilization, and the Aggregate Hours Elasticity

Author

Listed:
  • Domenico Ferraro

    (Arizona State University)

  • Damián Pierri

    (ESCP Business School - Universidad Autónoma de Madrid)

Abstract

We develop an equilibrium business cycle model of multi-plant firms with perfectly competitive product and labor markets. Plant-level production features a minimumlabor requirement, leading to occasionally binding capacity constraints at the firm level. The aggregate production function is kinked, displaying constant returns toscale when the economy is below capacity and decreasing returns when at capacity. We calibrate the model to U.S. data and show that the effects of distorting taxes are highly nonlinear and state-dependent, varying systematically with the state of the business cycle. The aggregate hours elasticity is higher in recessions and decreases with the size of the labor tax cut. Moreover, it differs from the structural preference parameter determining the individual-level labor supply elasticity.

Suggested Citation

  • Domenico Ferraro & Damián Pierri, 2024. "Multi-Plant Firms, Variable Capacity Utilization, and the Aggregate Hours Elasticity," Working Papers 341, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:341
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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