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 level
i
-
C
production
-
h
i
working-time index for skill level
i
-
g
i
steady-state growth rate of skill level
i
-
K
capital stock
-
L
i
employment volume of skill level
i
-
L
i
*
desired level of labour skill level
i
-
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 level
i
-
u
k
utilization rate of capital
-
w
i
wage rate for skill level
i
-
y
production volume
-
y
yij
Hicks partial elasticities of complementarity
-
i
steady-state cost share of skill level
i
-
k
Bk
steady-state cost share of capital
-
f
lf
highest level price index in cost function nesting
-
g
4
intermediate level price index in cost function nesting
-
h
4
lowest level price index in cost function nesting
-
i
steady-state relative wage share of skill level
i
-
ij
Allen partial elasticities of substitution
Parameters
d
i
l
adjustment speed of skill level
i
-
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 level
i
-
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 between
L
3 and (
K, (
L
1,
L
2))
-
g
Og
group elasticity of substitution between
K and (
L
1,
L
2)
-
h
6h
group elasticity of substitution between
L
1 and
L
2
We 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.
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