Capital Investment and Labor Demand
February 2022
Working Paper Number:
CES-22-04
Abstract
We study how bonus depreciation, a policy designed to lower the cost of capital, impacted investment and labor demand in the US manufacturing sector. Difference-in-differences estimates using restricted-use US Census Data on manufacturing establishments show that this policy 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 nd that investment is greater in plants with lower labor costs. Our results show that recent policies that incentivize capital investment do not lead manufacturing plants to replace workers with machines.
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:
investment,
manufacturing,
payroll,
quarterly,
earnings,
productivity estimates,
expenditure,
depreciation,
revenue,
incentive,
subsidy,
wages productivity,
tax,
irs,
taxation
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identified to contain references to specific institutions, datasets, and other organizations.
:
Census of Manufactures,
Annual Survey of Manufactures,
Characteristics of Business Owners,
Internal Revenue Service,
Center for Economic Studies,
Total Factor Productivity,
Cobb-Douglas,
Bureau of Economic Analysis,
Longitudinal Business Database,
Council of Economic Advisers,
North American Industry Classification System,
Longitudinal Employer Household Dynamics,
Information and Communication Technology Survey,
Russell Sage Foundation,
Quarterly Workforce Indicators,
UC Berkeley,
Herfindahl Hirschman Index,
Census Bureau Disclosure Review Board,
Kauffman Foundation,
Disclosure Review Board,
Indian Health Service,
Federal Statistical Research Data Center,
COVID-19
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