Anatomy of Firms’ Margins of Adjustment: Evidence from the COVID Pandemic

As a response to shocks, firms can adjust through several margins. But typically these margins are studied separately. In this paper, we jointly study firms’ margins of adjustments in output, capital, labor, input markets and productivity by leveraging a rich administrative dataset from Chile. We apply the analysis to the pandemic in the wake of the shock and throughout the economy’s recovery path. Importantly, we also study firms’ access to public policies aimed at supporting credit and protecting employment relations. We document considerable heterogeneity in the adjustment to the pandemic across firm size and industry. We also document widespread and heterogeneous access to the aforementioned policies. A corollary of credit policies is a considerable increase in firms’ leverage.