Modern Manufacturing Capital, Labor Demand and Product Market Dynamics: Evidence from France"

Philippe Aghion (London School of Economics;INSEAD;Collège de France)

December 6, 2022, 10:30–12:00

Room Auditorium 6

Macroeconomics Seminar


We use comprehensive micro data in the French manufacturing sector between 1995 and 2017 to document the effects of a fall in the cost of investments in modern manufacturing capital, including modern automation technologies, on employment, wages, sales, prices, and business stealing. Causal effects are estimated with event studies and a shift-share IV design leveraging pre-determined supply linkages and productivity shocks across foreign suppliers of manufacturing capital. At all levels of analysis — plant, firm, and industry — the estimated impact of capital investments on employment is positive, even for unskilled industrial workers. Furthermore, we find that capital investments lead to higher sales and exports, higher profits, and lower consumer prices, while wages and wage inequality remain unchanged. We estimate a positive industry-level employment response to manufacturing capital investments only in industries that are exposed to import competition, due to business-stealing across countries. Thus, typical investments in modern manufacturing capital lead to an increase in domestic labor demand and promote competitiveness in international markets.