Input substitution, economies of scale, and productivity growth in the U.S. upholstered furniture industry

Cost, factor demand and productivity growth are considered in the upholstered furniture industry over 1958–87. Factors are divided into labour, capital and materials. It is found that all inputs are substitutes in production although substitution elasticities are small. Factor demand is price-inelastic for all inputs. The industry operates around minimum average cost. Productivity growth is small but significant. The results indicate that labour will continue to be important in the industry. However, regional comparative advantage is not related to labour alone; the results suggest that policies to attract or retain the industry must consider the low degree of factor substitution