High volatility and adjustment costs lead to labor misallocation in industries
The article explores how differences in labor productivity among companies can be influenced by a volatile business environment and the costs of adjusting to changes. The researchers studied data from Chilean manufacturing plants to see how quickly companies adapted to changes and how uncertain factors like credit, energy, and exchange rates affected productivity. They found that when companies face higher adjustment costs and more volatility, there is greater variation in productivity levels. This suggests that improving how companies respond to changes and reducing uncertainty in the market could lead to significant productivity gains.