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How do firms adjust production factors to the cycle?

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  • Cette, G.
  • Lecat, R.
  • Jiddou, A-O-A

Abstract

We study production factor adjustment taking into account factor utilisation in multiple dimensions (labour and capital working time, capital capacity utilisation) through a unique survey among French manufacturing firms. This survey also allows us to examine the impact of obstacles to increasing capital operating time on this adjustment path. This survey, merged with balanced sheet and profit and loss accounts from fiscal reports, yields an unbalanced panel of 6,066 observations over 1993-2010. Factor utilisation adjusts the most rapidly, first through capital capacity utilisation and the capital workweek and then labour working time. The adjustment is slow for the number of employees and even slower for the capital stock. In case of a change in factor volume targets, the three factor utilisation degrees adjust to offset the very slow reaction of factor volumes. Obstacles to increasing the capital operating time lead to a slower adjustment of capital operating time, offset by a stronger adjustment of capacity utilisation.

Suggested Citation

  • Cette, G. & Lecat, R. & Jiddou, A-O-A, 2014. "How do firms adjust production factors to the cycle?," Working papers 484, Banque de France.
    • Handle: RePEc:bfr:banfra:484
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    References listed on IDEAS

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    1. Gilbert Cette & Nicolas Dromel & Rémy Lecat & Anne-Charlotte Paret, 2015. "Production Factor Returns: The Role of Factor Utilization," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 134-143, March.
    2. Marcela Eslava & John Haltiwanger & Adriana Kugler & Maurice Kugler, 2010. "Factor Adjustments after Deregulation: Panel Evidence from Colombian Plants," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 378-391, May.
    3. Gilbert Cette & Jimmy Lopez, 2012. "ICT demand behaviour: an international comparison," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 21(4), pages 397-410, June.
    4. Joe P. Mattey & Steven Strongin, 1997. "Factor utilization and margins for adjusting output: evidence from manufacturing plants," Economic Review, Federal Reserve Bank of San Francisco, pages 3-17.
    5. Caballero, Ricardo J & Engel, Eduardo M R A & Haltiwanger, John, 1997. "Aggregate Employment Dynamics: Building from Microeconomic Evidence," American Economic Review, American Economic Association, vol. 87(1), pages 115-137, March.
    6. Nadiri, M Ishaq & Rosen, Sherwin, 1969. "Interrelated Factor Demand Functions," American Economic Review, American Economic Association, vol. 59(4), pages 457-471, Part I Se.
    7. Gilbert Cette & Christian Clerc & Lea Bresson, 2015. "Contribution of ICT Diffusion to Labour Productivity Growth: The United States, Canada, the Eurozone, and the United Kingdom, 1970-2013," International Productivity Monitor, Centre for the Study of Living Standards, vol. 28, pages 81-88, Spring.
    8. Gilbert Cette & Nicolas Dromel & Rémy Lecat & Anne-Charlotte Paret, 2015. "Production Factor Returns: The Role of Factor Utilization," The Review of Economics and Statistics, MIT Press, vol. 97(1), pages 134-143, March.
    9. 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.
    10. Yuriy Gorodnichenko & Matthew Shapiro, 2011. "Using the Survey of Plant Capacity to Measure Capital Utilization," Working Papers 11-19, Center for Economic Studies, U.S. Census Bureau.
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    Cited by:

    1. Alexandra Ye. Batyaeva, 2023. "Влияние Недостатка И Избытка Труда И Капитала На Финансовое Положение Промышленных Предприятий В Рф (1993–2022 Гг.)," Russian Economic Development (in Russian), Gaidar Institute for Economic Policy, issue 8, pages 22-36, August.
    2. Gilbert Cette & Rémy Lecat & Ahmed Ould Ahmed Jiddou, 2016. "Margin rate and the cycle: the role of trade openness," Applied Economics, Taylor & Francis Journals, vol. 48(37), pages 3569-3575, August.
    3. Gilbert Cette & Sandra Nevoux & Loriane Py, 2022. "The impact of ICTs and digitalization on productivity and labor share: evidence from French firms," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 31(8), pages 669-692, November.
    4. Valérie Chouard & Laurent Baudry & Agnès Minier & Roxanne Tabouret & Sylvie Tarrieu, 2018. "Productive capital operating times increased sharply in 2017 – findings of the Banque de France survey [La durée d’utilisation des équipements progresse fortement en 2017 – Résultats de l’enquête m," Bulletin de la Banque de France, Banque de France, issue 216.
    5. Alexandra Ye. Batyaeva, 2023. "Impact of Shortage and Excess of Labor and Capital on the Financial Situation of Industrial Enterprises in the Russian Federation (1993–2022) [Влияние Недостатка И Избытка Труда И Капитала На Финан," Russian Economic Development, Gaidar Institute for Economic Policy, issue 8, pages 22-36, August.
    6. Pauline Lesterquy & Edith Stojanovic & Laurent Baudry & Honorine Dekoninck & Fabrice Heurtebize & Sylvie Tarrieu & Julien Zory, 2022. "La durée d’utilisation des équipements dans l’industrie rebondit en 2021, mais la reprise reste contrainte par des difficultés d’approvisionnement – Résultats de l’enquête menée par la Banque de Franc," Bulletin de la Banque de France, Banque de France, issue 240.
    7. Chouard, V. & Minier, A. & Tarrieu, S. & Baudry, L. & Soual, A., 2015. "La progression modérée de la durée d’utilisation des équipements se poursuit en 2014 - Résultats de l’enquête menée par la Banque de France," Bulletin de la Banque de France, Banque de France, issue 199, pages 43-52.
    8. Gerardin Mathilde, & Lesterquy Pauline, & Baudry Laurent, & Tarrieu Sylvie, & Dekoninck Honorine, & Heurtebize Fabrice, & Zory Julien, 2021. "Capital operating times plummeted in 2020 amid the unprecedented use of teleworking. Results of the survey conducted by the Banque de France in September 2020 [La durée d’utilisation des équipement," Bulletin de la Banque de France, Banque de France, issue 235.
    9. Sandra NEVOUX & Loriane PY & Laurent BAUDRY & Souny HARTWEG & Agnès MINIER & Sylvie TARRIEU, 2019. "Productive capital operating times continued to increase in 2018 - Findings of the annual Banque de France survey [La durée d’utilisation des équipements continue de progresser en 2018. Résultats d," Bulletin de la Banque de France, Banque de France, issue 222.
    10. Paul Bouche & Gilbert Cette & Rémy Lecat, 2021. "News from the Frontier: Increased Productivity Dispersion across Firms and Factor Reallocation," Review of Economics and Institutions, Università di Perugia, vol. 12(2).

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    More about this item

    Keywords

    production function; factor utilisation; rigidities.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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