Determining a proportion of labor and equipment to achieve optimal production: A model supported by evidence of 19 U.S. industries from 2000 to 2020

Abstract

<abstract> <p>This study examines two decades of labor and capital costs and gross output to evaluate production in 19 industries. A lesson learned is the need to have more input cost variables specifically defined to capture the production environment. Simply evaluating production by two categories alone—labor and capital—is not sufficient. This study tests a new production equation, producing an ordinary least squares regression model to explain changes to labor and capital resources in the U.S. economy. I found that increasingly growing capital intensity might not be optimal. Labor continues to play a role in production. Applied in proper proportion—neither too much nor too little—labor can be effective in producing maximum output. This study contributes to the literature by quantifying capital intensity with a measure that generalizes about U.S. production across industries. Evidence shows that 12 out of 19 industries had low capital intensity; in other words, most industries were labor intensive with relatively small utilization of equipment.</p> </abstract>