In this paper, we derive and estimate relationships governing variable utilization of capital and labor for a firm solving a dynamic cost-minimization problem. Our method allows for (i) imperfect competition, (ii) increasing returns to scale, (iii) unobserved changes in utilization, (iv)...

It has long been argued that cyclical fluctuations in labor and capital utilization and the presence of overhead labor and capital are important for explaining procyclical productivity. Here I present two simple and direct tests of these hypotheses, and a way of measuring the relative importance...