Economic Quarterly

Spring 2002

Towards a Theory of Capacity Utilization: Shiftwork and the Workweek of Capital

Andreas Hornstein

Capacity utilization, that is, the intensity with which the economy's capital stock is used, is an important source of output variations over business cycles. A straightforward measure of capacity utilization is the workweek of capital, or how long capital is operated on average. The workweek of capital differs from the workweek of labor because of variations in the extent to which shiftwork is used in the economy. The standard neoclassical growth model, when extended to include a variable workweek of capital, suggests that recent attempts to improve measures of productivity change in the presence of unobserved input variations fail to provide precise measures of the volatility of productivity change.

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