Modern manufacturing capital, labor demand, and product market dynamics: Evidence from France

Philippe Aghion (1, 2, 3) , Céline Antonin (4, 3) , Simon Bunel (5, 6, 7) , Xavier Jaravel (2)

1 INSEAD - Institut Européen d'administration des Affaires
2 LSE - London School of Economics and Political Science
3 Collège de France - Chaire Economie des institutions, de l'innovation et de la croissance
4 OFCE - Observatoire français des conjonctures économiques (Sciences Po)
5 Institut national de la statistique et des études économiques (INSEE)
6 Centre de recherche de la Banque de France
7 PSE - Paris School of Economics

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 predetermined 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.

Mots clés: modern manufacturing capital investments productivity France; modern manufacturing capital; investments; productivity; France

Domaines: Économie et finance quantitative [q-fin]

Philippe Aghion, Céline Antonin, Simon Bunel, Xavier Jaravel. Modern manufacturing capital, labor demand, and product market dynamics: Evidence from France. 2022. ⟨hal-03943312⟩