American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth
American Economic Review
vol. 114,
no. 8, August 2024
(pp. 2436–71)
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 US World War 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.Citation
Ilzetzki, Ethan. 2024. "Learning by Necessity: Government Demand, Capacity Constraints, and Productivity Growth." American Economic Review, 114 (8): 2436–71. DOI: 10.1257/aer.20230033Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E62 Fiscal Policy
- L93 Air Transportation
- N12 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: U.S.; Canada: 1913-
- N42 Economic History: Government, War, Law, International Relations, and Regulation: U.S.; Canada: 1913-
- N62 Economic History: Manufacturing and Construction: U.S.; Canada: 1913-