Lumpy investments, factor adjustments, and labour productivity

Abstract

This paper describes firms' output and factor demands before, during, and after episodes of lumpy investment. By using a rich employer-employee panel data set for two manufacturing industries and one service industry, we focus on simultaneous variations in output, capital, materials, man hours, labour productivity, and the skill composition and hourly cost of labour. Investment spikes are followed by roughly proportional changes in sales, labour, and materials, and significant increases in capital intensity. The changes in labour productivity that are associated with the investment spikes are small, which indicates that productivity improvements are not related to instantaneous technological change through investment spikes. Focusing on sectoral differences, capital adjustments are found to be smoother in the service industry than in the two manufacturing industries which may be related to differences in labour intensities between the industries. Copyright 2009 , Oxford University Press.