Investment and Subjective Uncertainty

Arbeitspapier

A longstanding challenge in evaluating the impact of uncertainty on investment is obtaining measures of managers' subjective uncertainty. We address this challenge by using a detailed new survey measure of subjective uncertainty collected by the U.S. Census Bureau for approximately 25,000 manufacturing plants. We find three key results. First, investment is strongly and robustly negatively associated with higher uncertainty, with a two standard deviation increase in uncertainty associated with about a 6% reduction in investment. Second, uncertainty is also negatively related to employment growth and overall shipments (sales) growth, which highlights the damaging impact of uncertainty on firm growth. Third, flexible inputs like rental capital and temporary workers show a positive relationship to uncertainty, demonstrating that businesses switch from less flexible to more flexible factor inputs at higher levels of uncertainty.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 15710

Classification and Topics

• Classification: Wirtschaft ; Management of Technological Innovation and R&D ; Technological Change: Choices and Consequences; Diffusion Processes
• Subject: subjective expectations ; business-level uncertainty

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bloom, Nicholas ; Davis, Steven J. ; Foster, Lucia ; Ohlmacher, Scott ; Saporta-Eksten, Itay
• Event: Veröffentlichung
• (who): Institute of Labor Economics (IZA)
• (where): Bonn
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/267447
• Last update: 10.03.2025, 11:44 AM CET