Employment by level of education and production factor substitutability

Summary Several types of elasticities of substitution and complementarity among three labour force aggregates (lower, intermediate, and higher educated) and capital are calculated, based on estimation of demand equations with cross-sectional data by industry groups over two years. Factor substitutability appears to be rather weak. Higher educated labour and capital are complements, as are lower and intermediate educated labour. Employment of unskilled labour is worsened by a reduction of the price of capital. Upgrading the educational level of labour requires the diminishing of the gap between wages of different labour force aggregates; especially the wages of higher educated labour have to decrease.This paper is based on part I.1 of The Elasticity of Substitution between Lower Educated Labour and Other Factors of Production. Research for this paper was supported by OSA (Organization for Labour Market Research). I wish to thank D.P. Broer for numerous and valuable suggestions, J.M.M. Ritzen for the original set-up of sections 2–4 in a preliminary draft and B. van Bunnik for skillful research assistance. I also benefited from comments and suggestions by P.C. Allaart, J.C. Siebrand, O.H. Swank, and a referee.     

Returns to scale and factor substitutability in the Spanish industry

Zusammenfassung Skalenertr?ge und M?glichkeiten der Faktorsubstitution in der spanischen Industrie.— Mit diesem Beitrag wird versucht, eine wichtige Infonnationslücke hinsichtlich der Produktionsbedingungen in der verarbeitenden Industrie Spaniens schlie\en zu helfen. Zu diesem Zweck wurden Cobb-Douglas- und CES-Funktionen für 20 Branchen mit Hilfe von Querschnittsregressionen für das Jahr 1968 gesch?tzt. Angesichts der v?llig unzureichenden Industriestatistiken in Spanien mu\ten die ben?tigten Daten von Unternehmern direkt erfragt werden. Die erzielten Ergebnisse zeigen (1) da\ sich die relative Bedeutung von zunehmenden, konstanten und abnehmenden Skalenertr?gen ziemlich die Waage h?lt und (2) da\ die Substitutionselastizit?ten zwischen Arbeit und Kapital für die Mehrheit der Branchen recht hoch zu sein scheinen. Da nur sehr einfache Modelle angewandt wurden und Verzerrungen in den Sch?tzergebnissen m?glich sind, k?nnen die numerischen Werte, vorl?ufig, nichts mehr als Orientierungshilfen für die Anwendung einer exportorientierten Industrialisierungsstrategie sein.

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Résumé Rendements d’échelle et possibilités de substitution des facteurs de production dans l’industrie espagnole.— Cet article veut aider à remplir une lacune importante dans l’information disponible sur les conditions de production dans l’industrie espagnole de transformation. A cet effet, on a estimé — à l’aide de régressions transversales — les fonctions Cobb-Douglas et CES pour vingt branches industrielles en 1968. Vu l’insuffisance absolue des statistiques industrielles pour l’Espagne, il fallait demander les données nécessaires directement aux entrepreneurs. Les résultats obtenus démontrent (1) que l’importance relative des rendements d’échelle augmentants, constants et diminuants est assez équilibrée et (2) que les élases ticitde substitution entre la main-d’∄uvre et le capital paraissent être relativement hautes pour la majorité des branches. Puisqu’on n’a employé que des modèles très simples, et puisqu’il peut y avoir des inexactitudes dans les résultats d’estimation, les valeurs numériques ne peuvent, en attendant, représenter que des points d’orientation pour l’élaboration d’une stratégie d’industrialisation, qui vise l’exportation.

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Resumen Rendimientos de escala y grado de substituibilidad de los factores de productión en la industria espa?ola.— El objetivo de este estudio es contribuir al mejoramiento de la información sobre las relaciones de producción existentes en la industria manufacturera espa?ola. Para ello se estimaron, mediante regressiones de corte transversal para el a?o 1968, funciones de productión del tipo CobbDouglas y CES para 20 sectores. En vista del estado deficiente de las estadísticas industriales en Espa?a, tuvieron que utilizarse datos facilitados directamente por empresas. Los resultados obtenidos parecen indicar que (1) la importancia relativa de rendimientos de escala crecientes, constantes y decrecientes es bastante equilibrada y que (2) las elasticidades de sustitución entre los factores trabajo y capital son relativamente altas para la mayoría de los sectores. Debido a que se utilizaron modelos muy simples y a que no cabe descartar la posibilidad de sesgos en las estimaciones, los valores numéricos no pueden, de momento, ser más que puntos de orientatión para la elaboratión de una estrategia de industrializatión hacia afuera.

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Riassunto Rendimenti di scala e possibilità della sostituzione di fattori nell’industria spagnola.— In questo articolo si cerca di contribuire a colmare una lacuna di informazione riguardante le condizioni di produzione nell’industria manifatturiera spagnola. Per questo scopo funzioni Cobb-Douglas e CES furono valutate per 20 settori con l’aiuto di regressioni trasversali per l’anno 1968. In vista delle statistiche industriali del tutto insufficienti in Spagna, i dati occorrenti furono direttamente richiesti agli impresari. I risultati ottenuti mostrano (1) che l’importanza relativa di rendimenti di scala crescente, costante e decrescente è abbastanza equilibrata e (2) che le elasticità di sostituzione tra lavoro e capitale sembrano essere relativamente alte per la maggioranza dei settori. Dal momento che furono utilizzati soltanto modelli assai semplici e deformazioni nei risultati valutati sono possibili, i valori numerici non possono essere più punti di orientamento per l’impiego di una strategia d’industrializzazione orientata verso l’esportazione.

     

Technical progress,factor substitutability and models of production: II

Summary This paper is the concluding installment of a series which surveys a number of fundamental production tenets. This examines and hence compares the properties of several production models which result from alternative pairings of the progress and substitutability assumptions discussed in part 1. Part I appeared in a recent issue ofDe Economist.I again thank E. Ray Canterbery, Simon K. Kuipers, T. Krishma Kumar, and Th. van de Klundert for their comments. I also thank Chiu-Yeung Chan, Franklin M. Fisher, and William F. James for their help with a few specifies. The responsibility for errors is mine alone.     

Technical progress,factor substitutability,and models of production: I

Summary This paper is the first of a two-part series which reviews and elaborates a number of rudiments central to production theory. The present installment focuses on technical progress and factor substitutability; specifically, it examines three dimensions of progress and four configurations of ex ante and ex post substitutability. The series is intended principally for the beginner in graduate economics.     

Segmented labour markets without policy-induced labour market distortions

This paper argues that labour market segmentation does not require labour market distortions. Segmentation appears when innovations are introduced in an initially imbalanced environment: because the capital market is imperfect. Only large firms can adopt the modern techniques. Small firms have to force their workers to reduce their labour incomes in order to compete with the modernized firms. The latter do not reduce wages because their interest is to minimize total labour costs rather than the wage bill alone: with labour a quasi-fixed cost. The difference in behaviour tends to be significant.     

The puzzle of migrant labour shortage and rural labour surplus in China

The paper examines the contentious issue of the extent of surplus labour that remains in China. China was an extreme example of a surplus labour economy, but the rapid economic growth during the period of economic reform requires a reassessment of whether the second stage of the Lewis model has been reached or is imminent. The literature is inconclusive. On the one hand, there are reports of migrant labour scarcity and rising migrant wages; on the other hand, estimates suggest that a considerable pool of relatively unskilled labour is still available in the rural sector. Yet the answer has far-reaching developmental and distributional implications. After reviewing the literature, the paper uses the 2002 and 2007 national household surveys of the Chinese Academy of Social Sciences to analyse and explain migrant wage behaviour, to predict the determinants of migration, and to examine the size and nature of the pool of potential rural–urban migrants. An attempt is also made to project the rural and urban labour force and migration forward to 2020, on the basis of the 2005 1% Population Survey. The paper concludes that for institutional reasons both phenomena are likely to coexist at present and for some time in the future.     

New Labour and the labour market

The recent run of good macroeconomic news masks mounting evidencethat worklessness is increasingly concentrated on selected individuals,households, and socio-economic groups and in geographical areas.These distributional aspects have been overlooked or ignoredover the last 20 years, but we believe they now form the mostpressing labour-market and social problems facing this administration.We focus on what we view as the government's selected priorities:the concentration of unemployment on certain individuals, groups,and areas; increasing inactivity, especially marked among lesseducated, older men; low pay, persistence of low wages, andits relationship with job loss; and the distribution of workacross households and child poverty. Many of these problemsleave lasting scars on individuals, so that successful interventionmay beneficially change an individual's life-chances. We examinethe evidence on each of these issues and the current state ofpolicy aimed to reduce their scale or intensity.     

Dual labour markets and nominal rigidity

The conventional menu cost framework performs poorly with realisticlabour supply elasticities: the menu costs required for pricerigidity are very high and the welfare consequences of monetarydisturbances are negligible. We show that the presence of duallabour markets greatly improves the performance of the frameworkboth by reducing the minimum effective menu costs and by boostingthe welfare consequences. In addition, the introduction of duallabour markets provides an explanation of procyclical productivityand the shrinking of wage differentials during booms, in linewith stylized facts on business cycles.     

Foreign-affiliate presence and skilled labour demand

This paper investigates the effect of inward foreign investment on the relative employment of skilled labour. The extensive review of the empirical evidence shows that the results seem to be country-specific. Using Canadian industry-level panel data, the paper shows that most Canadian industries have experienced skill upgrading, and that foreign investment, as measured by FDI or majority ownership, has contributed to this development. Moreover, notwithstanding higher regulatory restrictions on foreign investment into Canadian services industries, foreign investment has had a similar impact on skill upgrading across both the services and non-services sectors. Finally, offshoring is found to only have a positive significant impact on skill upgrading in the services sector.     

After the Black Death: labour legislation and attitudes towards labour in late-medieval western Europe

The Black Death spurred monarchies and city-states across much of Western Europe to formulate new wage and price legislation. These legislative acts splintered in a multitude of directions that to date defy any obvious patterns of economic or political rationality. A comparison of labour laws in England, France, Provence, Aragon, Castile, the Low Countries, and the city-states of Italy shows that these laws did not flow logically from new post-plague demographics and economics—the realities of the supply and demand for labour. Instead, the new municipal and royal efforts to control labour and artisans' prices emerged from fears of the greed and supposed new powers of subaltern classes and are better understood in the contexts of anxiety that sprung forth from the Black Death's new horrors of mass mortality and destruction, resulting in social behaviour such as the flagellant movement and the persecution of Jews, Catalans, and beggars.     

Affiliates and parent employment through foreign direct investment: a study case of substitutability or complementarity

How does outward foreign direct investment (FDI) affect employment of multinationals in the home country? Does the impact of outward investment differ among manufacturing and service sectors? Using data on Italian MNEs, this paper examines the impact of Italian outward FDI on local employment between 1998 and 2006. In particular, we investigate the relationship existing between employment in the parent company and employment in foreign affiliates by distinguishing according to host-country location and sector of activity. The results suggest that the effects of Italian outward FDI on domestic employment differ according to the sector and the country of destination. In the manufacturing sector, a weak but significant relationship of labour substitutability is found for Italian MNEs producing low-technology products in foreign affiliates localized in high-wage countries. On the other hand, a significant North–south complementarity relationship in labour demands appears in the High and Medium-high- technology sectors. In the service sector, we find strong complementarity between employment in the parent firm and employment in foreign affiliates: in particular, this regards Italian MNEs producing knowledge-intensive services both in Western affiliates and CEEC locations. These results are robust when we control for endogeneity of output and parent wages.     

Economic effects of immigrants on native and foreign-born workers: complementarity,substitutability, and other channels of influence

The authors use Standard Metropolitan Statistical Area (SMSA) data constructed from 1980 census microdata files and other sources to estimate a structural model of native/foreign-born labor demand and labor supply which distinguishes the effects upon real wages of each type of labor and on the employment of natives. The authors specify, econometrically estimate, and simulate the structural model which incorporates not only a production structure channel through which immigrants influence area real wages and employment, but also demand and native labor supply channels. It is noted that while these are not the only channels through which immigrants may affect native workers, the model nonetheless constitutes a step in the direction of a general equilibrium approach. In the production structure channel, immigrants and natives are found to be substitutes in production. Immigration lowers foreign-born wage rates and leads to lower wages for natives. The negative effects of the production channel usually are ameliorated through the demand channel. Further, immigrants add to local demand through their earnings and potentially through non-labor income, while also lowering unit costs and local prices which enhances real incomes and potentially net exports, and thus the demands for local output and area labor. The author discusses findings of interest from the simulation results based upon an analysis of all areas.     

Active labour market policies and job tenure

In this paper, we study the effect of subsidised on-the-jobtraining, training for the unemployed and pure wage subsidieson job tenure. Correcting for selection biases, we find thateach of the labour market policies increases the length of jobtenure. Despite the sensitivity of the estimates to the parametricassumptions with respect to the unobservables, the effect ofsubsidised on-the-job training schemes is always found to besignificantly positive. Training programs for the unemployedand pure wage subsidies always have a positive, but statisticallynon-significant effect Our results provide some support forhuman capital theories as opposed to matching theories.     

The Assessment: labour markets and welfare

Rapid and radical changes in the labour markets of developedeconomies have had profound implications for the welfare andwell-being of their citizens. This Assessment argues that thereis still considerable divergence in labour-market processesand outcomes across countries. This is likely to remain thecase. Nevertheless, there is a range of common problems. Importantamong these are what is happening to the rights of people atwork and how they should be protected. Views about appropriaterights have altered in recent years. In the future, debate aboutthis is likely to be even more closely linked to debate aboutlabour-market flexibility. The Assessment goes on to discussa variety of distributional problems related to joblessnessand low pay, and evaluates policy interventions designed totackle them. Although there has been progress in terms of policyeffectiveness, interventions are fragile in helping people toescape from cycles of repeated misfortune and long-term disadvantage.     

The decline of child labour: labour markets and family economies in Europe and North America since 1830

This survey of the ‘adulting’ of national and family economies argues that understanding of the segmentation of labour markets and of the male breadwinner has been impoverished by a failure to consider age alongside gender, and that we are at best in a situation where contextualized studies may provide some insight into reasons for the decline of child labour. With respect to family economies, there has been very little study of the timing or cause of the diminution of children's contributions, or of how, if at all, that decline is related to the rise in married women's participation in the labour force.     

Education and the labour market in Botswana

Using primary data from a 1993/4 Household Income and Expenditure Survey in Botswana, this article presents empirical results on occupational attainment, its determinants, and the extent of filtering down in Botswana's labour market, given changes in labour market conditions over time. It was found that the Botswana labour market has been characterised by some ‘filtering down’ of educated workers into less skilled jobs as the supply of skilled manpower exceeded demand. Those who entered the labour market earlier, those with more education, those located in the urban areas and male workers are more likely to occupy jobs that are higher up in the hierarchy than to be in an unskilled blue-collar job. Jobs higher up in the hierarchy are also more rewarding financially. The article shows that there is occupational segregation of workers by gender in Botswana's labour market in that female workers are generally confined to a narrow range of occupations. The policy implications are that employment creation has to be pursued vigorously and the issue of gender discrimination investigated further.     

Occupation-specific human capital and local labour markets

Most skills acquired through on-the-job training may be specificto an occupation and therefore transferable to some but notall firms. This paper explores the relationship between thesize of the local market for an occupation-specific skill andjob-training outcomes. The Stevens (1994) model of trainingpredicts that as market size increases, job turnover increasesand training becomes more general. I test these predictionsusing data on blue-collar workers and variation in market sizeacross US metropolitan areas. The empirical results supportthe theoretical predictions and the impacts are most relevantat low levels of market size.