Fixed Factors

Abstract

Small firms invest relatively less in custom-made machines and specifically trained employees. The overhead costs of fixed-capital assets are relatively larger for big firms that engage in the volume production of standardized products. Large firms also incur higher fixed employment costs to recruit and train a specialized workforce. Workers in large firms are paid higher wages designed to reduce labour turnover rates. These phenomena could not be explained without a formal analysis of fixed and quasi-fixed factors. A continuum of degrees of fixity makes for a richer theory of factor markets than a dichotomy of fixed versus variable factors.