Heterogeneous labour demand in the Colombian manufacturing sector

Abstract

Using the Colombian Annual Manufacturing Survey between 2000 and 2013, we investigate the heterogeneity in labour demand within the industrial sector based on the elasticities. We find that long-run own-price, output, and TFP elasticities vary across a variety of dimensions such as regions, sectors, and plant sizes depending on workers' skills and contract modalities (open-ended and temporary). The determinants of industrial labour demand are quantitatively different, mainly, across regions and, to some extent, subsectors when we focus on demand for unskilled workers. It is possible that, given the importance of apparel in the manufacturing sector in Pereira, labour demand for permanent skilled workers in that city is different from that of Bogotá, Cali, and Medellín. Thus, labour demand heterogeneity is just a symptom of the underlying differences in the production processes and produced goods, technologies, labour force qualification and productivity, preferences of workers, rigidities and wage-setting procedures, and peculiarities of goods' markets, etc. Suggestions to induce more wage flexibility and decrease labour segmentation emerge from this paper.

‘Disemployment’ effects of the minimum wage in the Colombian manufacturing sector

“…The manufacturing output and employment growth rates during the period are highly correlated, suggesting that the former has been the main engine of manufacturing employment growth. In fact, Arango, Castellani, and Obando, (2019 ; Table 1) estimated long-term output elasticities as high as 1.12 and 1.05 for skilled and unskilled workers respectively, both larger than the own-factor price elasticities of -0.59 and -0.42. Figure 1 shows the contributions, in percentage terms, of each subsector to employment (panel A) and value added generation (panel B) in the years 2000 and 2015.…”

“…Based on the evidence of Castellani et al (2017) and Arango et al (2019) we split the workers between permanent and temporary depending on the contract modality in which they are engaged with the establishments. In fact, according to these authors, there is a two-tier employment regime that drives the labour market to a partial segmentation between permanent and temporary workers.…”

“…where , , is the logarithm of the number of workers type (total, skilled, unskilled, permanent, and temporary workers) at establishment in period (year) . The model includes just one autoregressive term as in Arango et al (2019), which allows us to recover information about the adjustment costs. The index in , , , − corresponds to the different factors behind labour demand which in the empirical model include the real minimum wage, the own-factor price (the average real wage paid by the firm), the total factor productivity (TFP) indicator, the real interest rate, the value added of the firm in real terms, the real price of energy, etc.…”

“…In fact, we split the labour demand between skilled, unskilled, and further by contract modalities. The dissection of workers in this way relies upon the segmentation hypothesis of the labour force in the industrial sector set forth by Castellani et al (2017) [see also Arango et al, (2019)]. According to them, the optimal responses of employers to shocks depend on the type of workers they have or could have in the plants.…”

“…A number of works have previously studied the factors behind labour demand in the manufacturing sector of Colombia (see, among many others, Roberts and Skoufias, 1997;Vivas, Farné and Urbano, 1998;Bernal and Cardenas, 2003;Arango and Rojas, 2005;Eslava, Haltiwanger, Kugler, and Kugler, 2010;Medina, Posso, Tamayo and Monsalve, 2013;Balat and Casas, 2018;4 and, more recently, Arango, Castellani and Obando, 2019). Nevertheless, only Linda Bell (1997) analysed explicitly the effects of the minimum wage.…”