Working Paper Series no. 484: How do firms adjust production factors to the cycle?

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.

Gilbert Cette, Rémy Lecat and Ahmed Ould Ahmed Jiddou
April 2014

Classification JEL : D24; E22; O43

Keywords : production function; factor utilisation; rigidities