American Economic Association

Long-Run Changes in the Workweek of Fixed Capital

Author(s): Murray F. Foss
Source: The American Economic Review, Vol. 71, No. 2, Papers and Proceedings of the
Ninety-Third Annual Meeting of the American Economic Association (May, 1981), pp. 58-
63
Published by: American Economic Association
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 Long-Run Changes in the Workweek
of Fixed Capital

By MURRAY F. Foss*

The measurement of capital has always continuous industries and more efficient use
been difficult and the measurement of fixedof fixed capital by business were among the
capital input in accounting for the long-run reasons for the increase in hours.
growth of output in the United States has There isn't time to review that con-
had its share of controversy. One question troversy (see Survey of Current Business)
that arose in what could be called the capital and its aftermath here. The debate came to
utilization dispute of the late 1960's and a halt mainly because the opposing sides
1970's was whether, in measuring capital acknowledged that data were lacking to
input, the change in the real capital stock in make an adjustment of capital for a long-
place (the balance-sheet concept) should be run increase in utilization. It was agreed
adjusted also for any long-run change in that it made no difference, given proper
hours worked by capital per week or per measurement, whether one adjusted capital
year. This issue was part of a broader de- for longer hours, or identified the effect of
bate over the sources of U. S. economic longer capital hours as a component of the
growth. Two key conclusions of growth change in total factor productivity. It
studies by investigators in the 1950's and was further agreed that data on shift work
early 1960's were 1) the contribution of fixedwould help eliminate a deficiency that had
capital to output growth, while considerable, been pointed out earlier by Abramovitz,
in a sense has been smaller than commonly Fabricant, and Kuznets. In his 1957 article,
thought, and 2) the contribution of the Solow speculated that a secular increase in
growth in total factor productivity- the "re-shift work would explain at least part of the
sidual"- has been comparatively large 1943-49 deviations from his long-run rela-
(see Moses Abramovitz, Edward Denison, tionship between output and capital.
Solomon Fabricant, John Kendrick, and William Fellner had used a similar explana-
Robert Solow). But this view of the econ- tion for the low capital-output ratio he
omy was criticized. For example, in 1967 found for the wartime years.
Dale Jorgenson and Zvi Griliches main- This paper summarizes major findings of
tained that, as measured by Denison, the a more detailed study of the change in the
contribution of capital was understated (and workweek of fixed capital in manufacturing
total factor productivity overstated) in large from 1929 to 1976. The study, which refers
part because no allowance was made for the to weekly hours of plant operations and not
long-run increase in the utilization of fixed to the workweek of labor, first sets out the
capital. They made a utilization adjustment main facts of the change in weekly plant
that relied on a 1963 study I had made that hours in manufacturing from 1929 to 1976,
found an increase in equipment utilization and then analyzes reasons for the changes,
of one-third to one-half from the 1920's to using detailed industries as units of observa-
the mid-1950's in the manufacturing sector. tion. The study is scheduled to be published
My earlier study speculated that a rise in in early 1981.
shiftwork, an increase in the importance of The data on weekly plant hours are based
on a virtually identical set of questions that
have been asked in recent years of a sample
*Visiting scholar, American Enterprise Institute for of manufacturing plants as part of a Census
Public Policy Research. The assistance of Robert Dub- Bureau survey of capacity utilization, and
man is gratefully acknowledged. that were asked of all manufacturers in the

58

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VOL. 71 NO. 2 ECONOMICS
1929 Census of Manufactures.' The 1929
questions, which are part of the ques-
tionnaire reproduced in the published 1929
census volumes, were answered by respon-
dents but apparently were never tabulated. I
found that the basic census records for 1929
had been preserved on microfilm, contrary
to some earlier information I had received.
With the help of the National Science
Foundation and the Bureau of the Census, I
initiated a study in which the Census Bureau
drew from the 1929 returns a probability
sample of some 9,000 plants, which was
blown up to universe totals for companson
with the results of recent surveys.
From 1929 to 1976, the average workweek
of fixed capital in manufacturing increased
about 25 percent or at an average annual
rate of 0.47 percent (Table 1). This rise
reflects an increase in the number of hours
worked by plants per day as a result of
increased shift work partly offset by a de-
crease in the number of days worked per
week. The overall rise occurred in the face
of a decline in the average workweek of
labor from a customary 50 hours per week
in 1929 (actual hours were lower) to a 40-
hour standard in 1976. The overall rise oc-
curred even though there was little or no
change in the length of the plant workweek
for part of the capital stock that has typi-
cally worked around the clock.
From 1929 to 1976 the gross stock of
fixed capital in manufacturing (Commerce)
in 1972 prices rose by 166 percent or at an
average annual rate of 2.10 percent. The
0.47 percent annual rise in average weekly
plant hours over this period was thus 22
percent of the gross stock increase. In most
2-digit industries, increases in plant hours
reinforced increases in capital stock.
The rise in average weekly plant hours
provides a partial explanation for the drop
'The 1976 questionnaire instructs respondents to
refer to the "duration the plant is open and operating"
in reporting days per week and hours per day. Weekly
plant hours were derived as the product of industry
averages of these two items for "actual operations." In
1929, respondents were asked to report "normal num-
bers of hours plant was operated per day and per
week." Shift data were also reported.
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OF SLACK CAPACITY 59
TABLE I -AVERAGE WEEKLY PLANTr HouRs AND THEIR
CHANGE, 1929-76, BY MAJOR INDUSTRY
Percent
1929 1976 Change
Food 88.0 90.3 2.6
Tobacco 49.2 104.4 112.2
Textiles 66.8 115.6 73.0
Apparel 46.0 46.3 0.6
Lumber 58.2 62.6 7.6
Furniture 50.3 52.6 4.6
Paper 128.7 139.6 8.5
Printing and Publishing 62.7 82.8 31.6
Chemicals 108.1 138.2 27.8
Petroleum 157.8 162.9 3.2
Rubber 103.7 120.0 15.7
Leather 49.4 45.6 -7.7
Stone, Clay, and Glass 104.6 119.3 14.1
Primary Metals 125.5 142.4 13.5
Fabricated Metals 55.6 77.8 39.9
Machinery 55.7 83.5 49.9
Electrical Machinery 49.6 77.0 55.2
Transportation Equipment 60.5 88.8 46.8
Instruments 59.5 76.6 28.7
Miscellaneous 49.3 62.1 26.0
All Manufacturing 24.7
Source: Estimates based on data from Bureau of
Census and BLS.
Notes: 2-digit industries- 1976, average weekly
plant hours at 4-digit level weighted by book value
of gross fixed assets (Census);- 1929, average
weekly plant hours at detailed industry level
weighted by horsepower. For both years industry
classifications have been modified. All manufactur-
ing change: percent change in 2-digit averages as
calculated above weighted by 1954 gross fixed assets
in 1972 prices (BLS).
of almost 45 percent in the ratio of fixed
capital to output in manufacturing from
1929 to 1976. The drop is about 30 percent
after adjusting for the rise in plant hours
(Table 2).
When changes in capital input are esti-
mated by the change in the stock of capital
in place, the effect of longer average week-
ly plant hours should be included in the
change in total factor productivity. Using
Kendrick's estimates of total factor produc-
tivity in 2-digit industries for 1929-48 and
1948-76, I regressed the 1929-76 change in
plant hours on the change in total factor
productivity. For the twenty 2-digit in-
dustries, r=.45, which is significant at the
.05 level.
60 AEA PAPERS AND PROCEEDINGS MAY1981

TABLE 2-1976 INDEXES OF MANUFAcruRINo OurPuT, FIXED CAPITAL, AND

CAPITAL-OuTPUT RATIos, WITHouT AND WITH ADJuSTMENT FOR CHANGES
IN AVERAGE WEEKLY PLANr HOURS (1929=100)

Fixed Capital

Without Hours Adjustment With Hours Adjustment

Output Gross Net Gross Net

480.8 265.8 254.7 331.6 317.6
Fixed Capital-Output Ratios

55.3 53.0 69.0 66.0

Source: Output-Kendrick and Bureau of Economic Analysis; Capital Stocks-

Bureau of Economic Analysis; Hours Adjustment-see All Manufacturing, Table 1.

The data on weekly hours of plant opera-
tions made possible an estimate of the
growth of "continuousness" in manufactur-
ing, which is an important aspect of modem
technical change. A rise in the capital-labor
ratio and a reduction in the time during
which capital is idle are two of the most
important results of the trend toward con-
tinuousness. Within each 4-digit industry in
1976 it was possible to obtain tabulations of
plants working 150 hours or more per week
and their share of employment. These de-
tailed industry percentages were weighted
by gross fixed assets to obtain 2-digit in-
dustry percentages and a percentage of all
manufacturing. This yielded a figure of 28
percent for 1976. Similar tabulations for
1929 that made use of horsepower to com-
bined detailed industries yielded a figure of
16 percent for that year. The difference be-
tween the figures would be smaller if the
mix of industries at the 2-digit level were
held constant.
To explain industry variations in the
change in weekly hours of plant operations
from 1929 to 1976, I made use of some
broad facts that emerged from the statistical
tabulations, some institutional developments
and certain portions of the micro theory
underlying shift work (see Robin Marris,
Gordon Winston, and Roger Betancourt
and Christopher Clague). Both cross-sec-
tional and change versions were tried based
on essentially the same group of industries,
which numbered from 85 to 95. The cross
sections, which were done separately for
1929 and 1976 and usually with the same
variables, explained more than half of the
variance in each year. But only the change
version results are described here. The de-
pendent variable is ordinarily the difference
in average weekly plant hours in 1976 as
compared to 1929. The independent vari-
ables, data for which came mostly from the
census, are as follows:
1) The change in continuousness. Two
versions of this variable were used. One, the
share of employment in continuous plants,
has already been described. A second was a
dummy variable indicating the presence or
absence of a single plant operating 150
hours or more per week in a given industry.
2) The change in capital intensity. The
greater the capital intensity, the more likely
the use of shift work. This variable is obvi-
ously related to continuousness. Because
measures of capital intensity based on data
that take no account of shifts can be mis-
leading, I wound up using the ratio of kilo-
watt hours of all electricity-a proxy for
capital services-to wage earner man-hours.
3) Changes in wage differentials for late
shift work. At a point in time wage differen-
tials for late shifts discourage shift work. We
have two important facts about these
differentials from the BLS (see Charles
O'Connor). First, they are small relative to
straight-time wages in this country. Second,
shift differentials in manufacturing have not
kept pace with wages generally, at least in
the postwar period. Testing of the hypothe-
sis was severely hampered by data limita-

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VOL. 71 NO. 2 ECONOMICS
TABLE 3-REsULTs OF EQUATIONS ExPLAINING THE
CHANGBE DN AVERAGE WEEKLY PLANT HOURS FROM
1929 TO 1976, wiTH Two VARIANTS FOR
CONTINUOUSNESS VARIABLE
Regression Coefficients using
Constant Dummy for (4) Percentage for (4)
-10.54 (1.2) -10.83 (1.2)
(1) Capital intensity .2434 (2.3)a .1951 (1.4)
(2) Single-plant firms - .2354 (2.0)a - .2503 (2.0)a equations with two versions for continuous-
(3) Women - .3036 (1.8)b - .3569 (2.1)a
(4) Continuousness 13.04 (3.0)a .1716 (.9)
(5) Labor workweek
in 1929 1.96 (2.6)a 2.2332 (2.9)a
R 2 .28 .21
N 88 88
'Significant
bSignificant
tions and was confined to a very small sub-
sample of the large sample.
4) Changes in relative importance of
single-plant firms. A few industries like the
parel and footwear operate their plants fewer
hours per week today than in 1929. These
are industries in which owners may provide
a significant share of total labor input or
may constitute the only managerial input
available to the firm. In such firms the
owners prefer leisure to the income that
might be earned through longer hours on
extra shifts. This influence would have di-
minished over time as the importance of
small firms within industries diminished.
This variable was measured by the change
in the proportion of value-added accounted
for by single-plant firms from 1929 to 1976.
5) Changes in the importance of women
in the labor force. If women are the main
source of added labor supply, but do not
wish to work at night or are prohibited by
law from doing so, industries may find
themselves inhibited in their ability to use
shift work. However, the force of this in-
fluence probably grew smaller over time as
a result of the movement toward equality
between the sexes.
6) The effect of the Wage-Hour Law. The
Fair Labor Standards Act of 1938 probably
hastened the adoption of shift work because
it required that overtime be paid at a time-
and-a-half rate. My hypothesis is that the
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OF SLACK CAPACITY 61
industries that adapted most rapidly to the
40-hour week and multiple shifts, that is, to
longplant hours, were those that started off
with long labor hours and a large potential
liability due to the new wage-hour legisla-
tion. I used the labor week in 1929 as a
proxy for its length around the time of the
passage of the Wage-Hour Law.
Table 3 presents the results of the change
ness. With the dummy version, which has
the higher r2, the coefficients on (1), (2), (4),
and (5) have the correct signs and all are
significant at the .05 level. The coefficient
for the share of women in total employment
is negative and significant at the .10 level.
at .05 lev
The comparativelyat low t-values.10
for capital le
intensity and continuousness when continu-
ousness is measured as a percentage are
attributable to multicollinearity.
The coefficient on weekly labor hours in
1929 indicates that, for every hour by which
ap- workweek of labor in 1929 exceeds 40
hours, the length of the plant workweek
increased by 2.0 to 2.2 hours from 1929 to
1976.
Because of data gaps my analysis of the
effect of late-shift wage differentials was
limited to nineteen industries and was con-
fined to 1976. Since the shift differential is
positively related to the supply of labor for
late shifts and negatively related to the de-
mand for late-shift labor, I used a model
with both supply and demand equations.
However, significant coefficients for the dif-
ferential variable were not obtained.
To summarize: the rise in average weekly
plant hours in manufacturing from 1929 to
1976 is explained in part by the rise in
capital intensity and a related increase
in continuous operations in industry. In-
dustries where single-plant firms predom-
inate today are those where plant hours are
short and probably reflect a preference by
owners of small firms for leisure as against
income. The decline in the importance of
such firms has contributed to the lengthen-
ing in plant hours. The overtime provisions
of the Wage-Hour Law also contributed to
the trend toward longer plant hours. The
evidence is not strong but the growing pres-
ence of women in employment seems to
62 AEA PAPERS AND
have inhibited the use of shift work for the
period as a whole. The long-term decline in
shift differentials relative to wages has prob-
ably had some influence on the spread of
shift work even though the severely limited
sample with wage differential data did not
yield statistically significant results.
I have not yet attempted to relate these
findings to those of my 1963 study. Today's
results provide part of the explanation for
the rise in average weekly equipment hours
in manufacturing I had found from 1929 to
1954, but they will not explain any rise in
the efficiency of capital utilization on a
given shift. Still, the increases reported here
could help explain an apparent decline in
average lives of equipment in use. They
could also be one of the explanations of
why the stock of manufacturing plants has
risen so little in the past 25 or 50 years.
Work is underway on estimates of weekly
plant hours for periods between 1929 and
1976 as well as on the rest of the private
business sector. Until the picture is more
complete, we ought to reserve judgment
about economy-wide issues, such as the ex-
tent to which the long-run decline in the
workweek of labor may have been offset by
a rise in the workweek of fixed capital. That
problem was addressed in a 1956 paper by
Charles Schultze, who surmised that from
1890 to the early 1950's about two-thirds of
the decline in the workweek of nonfarm
labor was accompanied by a drop in hours
worked by fixed capital.
It is interesting to speculate about the
long-term relative decline in late shift wage
differentials, and the concomitant rise in
shift work. Does it mean that the supply
curve of labor willing to work evenings and
nights has shifted out? And is this because
of improved transportation and plant amen-
ities that have reduced the real cost to the
worker of night work? It may be that deci-
sions by business to locate new plants de-
signed to operate two and three shifts have
been importantly influenced by the availa-
bility of a labor supply that was willing to
work late shifts at low shift differentials.
This could be the case where plants were
located away from large cities and repre-
sented opportunities for farmers either to
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PROCEEDINGS MA Y 1981
quit farming or to moonlight and thus im-
prove their income. If so, increases in shift
work in rural areas at relatively low shift
differentials could be an important nexus
between capital investment and the move-
ment of labor out of farming. This rationale
is consistent with Denison, who has
attached importance to the shift of farm
labor to nonfarm employment in explaining
the rise in total factor productivity from
1929 to recent years.
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VOL. 71 NO.2 ECONOMICS OF SLACK CAPACITY 63

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