Employment,schooling and productivity growth

Summary This paper presents an empirical analysis of labour demand and labour productivity growth in The Netherlands. Assuming an aggregate production function with as factors capital and 3 types of labour, distinguished by educational attainment, cost minimization leads to a set of 3 labour demand relations to be estimated on time series data. Using the estimates and the implied elasticities, aggregate labour productivity growth is decomposed into factor substitution, autonomous factors, labour time shortening, economies of scale, utilization rates and the increased educational level of the working population. The contributions of substitution, utilization rates and education appear to be substantial, notably in the seventies.

List of symbols

Variables a_i Efficiency index of skill leveli - C production - h_i working-time index for skill leveli - g_i steady-state growth rate of skill leveli - K capital stock - L_i employment volume of skill leveli - L_i^* desired level of labour skill leveli - p output price - p^* desired output price - s_i^* long-run static labour shares in the production value - p_k rental price of capital - P index of total factor productivity - P_l index of labour productivity - u_i utilization rate of skill leveli - u_k utilization rate of capital - w_i wage rate for skill leveli - y production volume - y_yij Hicks partial elasticities of complementarity - _i steady-state cost share of skill leveli - _kBk steady-state cost share of capital - _flf highest level price index in cost function nesting - _g4 intermediate level price index in cost function nesting - _h4 lowest level price index in cost function nesting - _i steady-state relative wage share of skill leveli - _ij Allen partial elasticities of substitutionParameters d_il adjustment speed of skill leveli - d_p price adjustment speed - M mark-up on marginal costs - scale elasticity of production - _i distribution parameter in cost function,i = 3, g - _i distribution parameter in cost function,i = k, h - _i distribution parameter in cost function,i =1, 2 - _i autonomous labour productivity growth for skill leveli - _i cost share of skill level in base year - _f production cost index in base year - _i hours elasticity in labour efficiency index - group elasticity of substitution betweenL₃ and (K, (L₁,L₂)) - _gOg group elasticity of substitution betweenK and (L₁,L₂) - _h6h group elasticity of substitution betweenL₁ andL₂We would like to thank B. Downey, G.M.M. Gelauff, A. Nieuwenhuis, J.M.M. Ritzen, J.C. Siebrand and an unknown referee for helpful comments on earlier drafts.