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The Sources of Capital-Labor Substitutability

Author

Listed:
  • Laurence Ales

    (Carnegie Mellon University)

  • Brian Kovak

    (Carnegie Mellon University)

  • Hakki Ozdenoren

    (Carnegie Mellon University)

  • Kate Whitefoot

    (Carnegie Mellon University)

Abstract

We study detailed engineering process-based cost models (PBCM). We use such models to determine the primitive sources responsible for the emergence of capital-labor substitutability at plant level. We make theoretical and quantitative contributions. On the theoretical side, we provide a framework to study PBCMs and we identify two fundamental drivers of substitutability across factors of productions: (i) uncertainty and adjustment frictions in the production process; (ii) heterogeneity of production lines. On the quantitative side, we use a novel dataset containing detailed plant-level production data on automobile assembly to determine the quantitative relevance of the channels driving factor substitutability.

Suggested Citation

  • Laurence Ales & Brian Kovak & Hakki Ozdenoren & Kate Whitefoot, 2018. "The Sources of Capital-Labor Substitutability," 2018 Meeting Papers 1201, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1201
    as

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