Learning by necessity: government demand, capacity constraints, and productivity growth

Ilzetzki, Ethan ORCID: 0000-0002-7573-9411 (2024) Learning by necessity: government demand, capacity constraints, and productivity growth. American Economic Review, 114 (8). 2436 – 2471. ISSN 0002-8282

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Abstract

This paper studies how firms adapt to demand shocks when facing capacity constraints. I show that increases in government purchases raise total factor productivity in quantity units at the production-line level. Productivity gains are concentrated in plants facing tighter capacity constraints, a phenomenon I call “learning by necessity”. Evidence is based on newly digitized archival data on USWorldWar II aircraft production. Shifts in demand across aircraft with different strategic roles provide an instrument for aircraft demand. I show that plants adapted to surging demand by improving production methods, outsourcing, and combating absenteeism, primarily when facing tighter capacity constraints.

Item Type:	Article
Additional Information:	© 2024 American Economic Association
Divisions:	Economics
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D20 - General D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy Formation, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L93 - Air Transportation N - Economic History > N1 - Macroeconomics and Monetary Economics; Growth and Fluctuations > N12 - U.S.; Canada: 1913- N - Economic History > N4 - Government, War, Law, and Regulation > N42 - U.S.; Canada: 1913- N - Economic History > N6 - Manufacturing and Construction > N62 - U.S.; Canada: 1913-
Date Deposited:	10 Jul 2024 09:03
Last Modified:	01 Dec 2024 04:13
URI:	http://eprints.lse.ac.uk/id/eprint/124150

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