A dynamic heterogeneous labour demand model for German manufacturing

Abstract

The disaggregation of labour in different skill classes has been of major interest in applied labour demand analysis for many countries in recent years.Most of the studies on heterogenous labour demand systems, however, are based on static models implicitly assuming that labour demands adjust to change in prices instantaneously. This paper presents a general dynamic heterogeneous labour demand model based on the quadratic cost function. A special emphazis is directed at three possible determinants of labour demand: capital-skill complementarity, the price sensitivity of labour by different skill classes and the impact of intermediate materials on the different types of labour.Based on west German industry data over the period 1976-1995, it was found that the general dynamic model performs well on statistical grounds. Both in the short-run and the long-run labour by different skill classes have inelastic demands. Unskilled labour was found to have a higher wage elasticity compared to medium-skilled labour. This explains a part of the shift of demand away from unskilled labour. We find that intermediate materials are a substitute for unskilled labour, with a short-run cross price elasticity of 0.27. Despite some temporary falls in the input prices of materials, unskilled labour-material substitutability only explains a small part of the movement of demand away from low-skilled employment. Capital accumulation alone can only account between 6 and 13 percent of the observed shift in demand towards university graduates. A Dynamic Heterogeneous Labour DemandModel for German Manufacturing * Martin Falk* and Bertrand Koebel * * Abstract. This paper presents an application of the Generalised Error Correction Model (GECM) for heterogeneous factor demands based on the quadratic cost function. Using data for 26 West German manufacturing industries over the period 1976-1995, it turns out that less general specifications such as the partial adjustment and the static AR(1) model are rejected. Furthermore, both shortrun and long-run labour demands of different skill classes are inelastic. Unskilled labour is found to have a somewhat higher wage elasticity in absolute terms than medium-skilled labour. A small part of shift in demand away from unskilled labour can be explained by the substitutability relationship between intermediate materials and unskilled labour. Between 6 and 13 percent of the observed shift towards high-skilled labour can be explained by capital accumulation.

IT Capital, Job Content and Educational Attainment

“…Chennells and van Reenen (1999) give a comprehensive overview of the literature on SBTC, covering the major empirical studies in this field of research. For Germany, empirical studies by Falk (2001), Falk and Koebel (2001), Fitzenberger (1999), and Kaiser (2000) support the view that technological change in the recent years has been skill-biased.…”

Does Marginal Employment Substitute Regular Employment? - A Heterogeneous Dynamic Labor Demand Approach for Germany

“…Most studies employ partial adjustment models (Kugler et al, 1989;FitzRoy & Funke, 1995Fitzenberger, 1999). Falk and Koebel (2001) estimate various types of error correction models additional to partial adjustment and autoregressive error models.…”

“…The partial adjustment model is used by Kugler et al (1989), Kaiser (2000), and Fitzenberger (1999). A more general model is used by Falk and Koebel (2001) and Lindquist (1995) who use data of the Norwegian Aluminium industry. They rely on an error correction model for seemingly unrelated regressions introduced by Anderson and Blundell (1982).…”

“…In both studies the authors use one lag for adjustment and test the nested partial adjustment, autoregressive error and static model. While Lindquist (1995) uses the autoregressive error model (AR1) Falk and Koebel (2001) reject both, the partial adjustment and the AR1 model for their German data for 1976-1995.…”

Are Skill Requirements in the Workplace Rising? Stylized Facts and Evidence on Skill-Biased Technological Change

“…8 Katz and Autor (1999), Acemoglu (2002) and Chennells and van Reenen (1999) give comprehensive reviews of the literature on SBTC, covering the major studies in this field of research. Empirical studies by Falk (2001), Falk and Koebel (2001), Fitzenberger (1999) and Kaiser (2000) investigate SBTC in West Germany. The picture they present is consistent with the view that recent technological change in West Germany has also been skill-biased.…”