Working Paper: NBER ID: w11656
Authors: Marcela Eslava; John Haltiwanger; Adriana Kugler; Maurice Kugler
Abstract: We analyze employment and capital adjustments using plant data from the Colombian Annual Manufacturing Survey. We estimate adjustment functions for capital and labor as a non-linear function of the gaps between desired and actual factor levels, allowing for interdependence in adjustments of the two factors. In addition to non-linear employment and capital adjustments in response to market fundamentals, we find that capital shortages reduce hiring and labor surpluses reduce capital shedding. We also find that after factor market deregulation in Colombia in 1991, factor adjustment hazards increased on the job destruction and capital formation margins. Finally, we find that completely eliminating frictions in factor adjustment would yield a substantial increase in aggregate productivity through improved allocative efficiency. Yet, the actual impact of the Colombian deregulation on aggregate productivity through factor adjustment was modest.
Keywords: joint factor adjustment; irreversibility; input reallocation; deregulation
JEL Codes: E22; E24; O11; C14; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital shortages (F65) | Reduced hiring (J63) |
| Labor surpluses (J20) | Reduced capital shedding (G31) |
| Deregulation in 1991 (L51) | Increased responsiveness in labor adjustments (J49) |
| Increased responsiveness in labor adjustments (J49) | Modest impact on aggregate productivity (O49) |