How Do Firms Adjust Production Factors to the Cycle?

27 Pages Posted: 29 Apr 2014

See all articles by Gilbert Cette

Gilbert Cette

Banque de France

Remy Lecat

Banque de France

Ahmed Jiddou

Banque de France

Date Written: April 2014

Abstract

We study production factor adjustment taking into account factor utilization in multiple dimensions (labor and capital working time, capital capacity utilization) 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 utilization adjusts the most rapidly, first through capital capacity utilization and the capital workweek and then labor 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 utilization 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 utilization.

Keywords: production function, factor utilisation, rigidities

JEL Classification: D24, E22, O43

Suggested Citation

Cette, Gilbert and Lecat, Remy and Jiddou, Ahmed, How Do Firms Adjust Production Factors to the Cycle? (April 2014). Banque de France Working Paper No. 484, Available at SSRN: https://ssrn.com/abstract=2430665 or http://dx.doi.org/10.2139/ssrn.2430665

Gilbert Cette (Contact Author)

Banque de France ( email )

Paris
France

Remy Lecat

Banque de France ( email )

Paris
France

Ahmed Jiddou

Banque de France ( email )

Paris
France

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