Capacity and Macroeconomic Fluctuations

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This project addresses a major and important puzzle with implications for our understanding of U.S. manufacturing productivity. The results should also enhance our understanding of the determinants of economic fluctuations in output. The puzzle is the idleness of capital much of the time in U.S. manufacturing. Specifically, the workweek of capital in U.S. manufacturing averages only 55 hours per week. If a unit of capital does not get less productive with more intensive use over time and if its user cost is independent of the rate of utilization, then the productivity of the capital stock in U.S. manufacturing could be three times higher simply by increasing the utilization of the existing capital stock. The idleness of capital also implies that even at cyclical peaks, tight capacity does not limit the expansion of the economy. This project investigates the costs of increasing the workweek of capital along several dimensions. It determines whether these costs justify the low utilization of capital. The estimates of the cost of using capital more intensively are based on a study of the U.S. economy during World War II. The private U.S. economy during World War II produced a tremendous increment in output with little increase in capacity. This project assembles and analyzes data on shift work, female labor participation, on work hours and conditions for production works and on other labor arrangements during World War II from the records of the price control board, the military procurement agencies and private companies.