| Abstract: |
We document and dissect a new stylized fact about firm growth: the shift from
labor to intermediate inputs. This shift occurs in input quantities, cost and
output shares, and output elasticities. We establish this fact using German
firm-level data and replicate it in administrative firm data from 11
additional countries. We also document these patterns in micro-aggregated
industry data for 20 European countries (and, with respect to industry cost
shares, for the US). We rationalize this novel regularity within a
parsimonious model featuring (i) an elasticity of substitution between
intermediates and labor that exceeds unity, and (ii) an increasing shadow
price of labor relative to intermediates, due to monopsony power over labor or
labor adjustment costs. The shift from labor to intermediates accounts for one
half to one third of the decline in the labor share in growing firms (the
remainder is due to wage markdowns and markups) and rationalizes most of the
labor share decline ingrowing industries. |