Capital Investment and Labor Demand

110 Pages Posted: 15 Nov 2021 Last revised: 20 Nov 2021

See all articles by E. Mark Curtis

E. Mark Curtis

Wake Forest University - Department of Economics

Daniel Garrett

University of Pennsylvania - Finance Department

Eric Ohrn

Grinnell College - Department of Economics

Kevin Roberts

Duke University

Juan Carlos Suárez Serrato

Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2021

Abstract

We study how tax policies that lower the cost of capital impact investment and labor demand. Difference-in-differences estimates using confidential US Census Data on manufacturing establishments show that tax policies increased both investment and employment, but did not lead to wage or productivity gains. Using a structural model, we show that the primary effect of the policy was to increase the use of all inputs by lowering overall costs of production. The policy further stimulated production employment due to the complementarity of production labor and capital. Supporting this conclusion, we find that investment is greater in plants with lower labor costs. Our results show that recent tax policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.

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Suggested Citation

Curtis, E. Mark and Garrett, Daniel and Ohrn, Eric and Roberts, Kevin and Suárez Serrato, Juan Carlos, Capital Investment and Labor Demand (November 2021). NBER Working Paper No. w29485, Available at SSRN: https://ssrn.com/abstract=3963713

E. Mark Curtis (Contact Author)

Wake Forest University - Department of Economics ( email )

P.O. Box 7659
Winston-Salem, NC 27109-7285
United States

Daniel Garrett

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

HOME PAGE: http://https://fnce.wharton.upenn.edu/profile/danielgg/#research

Eric Ohrn

Grinnell College - Department of Economics ( email )

P.O. Box 805
Grinnell, IA 50112
United States

Kevin Roberts

Duke University ( email )

Departments of Classical Studies & Philosophy
Durham, NC 27708
United States

Juan Carlos Suárez Serrato

Duke University - Department of Economics ( email )

Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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