Offshoring, Labour Market Institutions and the Elasticity of Labour Demand

This paper analyses the evolution of the elasticity of labour demand and the role of offshoring therein using industry-level data for a large number of OECD countries. The first main finding is that the wage elasticity of labour demand has increased substantially. The finding that employment has become increasingly sensitivity to wages is shown to be robust to a wide variety of econometric specifications of labour demand, although some of this association may reflect a trend increase in the speed of adjustment rather than an increase in the long-run wage elasticity. A second finding is that more intensive offshoring is associated with more elastic labour demand, consistent with increased offshoring having expanded the flexibility of firms to adjust the mix of domestic workers and foreign value-added in production when relative factor prices change. More in particular, the average elasticity of labour demand appears to be about 30% to 40% larger in absolute value than the counter-factual elasticity which would have prevailed had offshoring not been possible. Increases of this magnitude might well have important implications for job security and worker bargaining power. Finally, we find some evidence that strict employment protection legislation weakens the link between offshoring and higher labour demand elasticity. This suggests that the impact of offshoring on labour demand elasticity depends on the national institutional environment.Employment protection legislation, international outsourcing, labour demand, worker insecurity

A Companion Guide to Analyzing and Projecting Occupational Trends

This report is intended to complement Future Labour Supply and Demand 101: A Guide to Analysing and Predicting Occupational Trends, a technical document commissioned by the Forum of Labour Market Ministers (FLMM) Labour Market Information Working Group (LMIWG) with the aim of achieving greater consistency and coordination in labour supply and demand modeling in Canada. In conjunction with the technical document, this companion guide will assist stakeholders in making informed decisions regarding the occupational modeling needs of their organizations.labour supply, labour demand, modeling, occupation

Adjusting Labour Demand: Multinationals vs. National Firms: A Cross-European Analysis

This paper provides a cross-country perspective to the firm-level analysis of the relation between foreign ownership and labour demand. We estimate labour demand equations in eleven European countries using dynamic panel data techniques on samples that permit to distinguish the ownership status of firms. We find that the employment adjustment is significantly faster in MNEs’ affiliates, irrespective of the country investigated. As for the wage elasticity of labour demand, MNEs show smaller elasticities compared with national firms, and very little variation across countries. Crosscountry correlations show that the relative value of wage elasticities in MNEs on that in NEs is positively related to country-level indexes of labour market regulation (employment protection, union presence,...). We interpret the results as follows. MNEs tend to have a more rigid demand for total labour (possibly due to a different skill composition). However, being MNEs relatively “footloose”, this difference tends to vanish as the rigidity of employment regulations rises.Multinational firms, labour demand elasticity, employment adjustment costs

Segmented Labour Markets in South Africa

[Excerpt] The textbook labour market model aggregates all workers, all employers and all sectors of the economy into a single labour market. In this single labour market, workers supply labour, employers demand labour and the rate of pay (termed wage for shorthand) is determined by the intersection of supply and demand. Segmented labour market analysis proceeds from a different starting point. Workers, employers and sectors are not aggregated together. Rather, two or more labour market segments are identified, the groupings reflecting fundamental differences in how labour supply, labour demand and wage-determination mechanisms operate in different segments. For example, in the South African context, it is meaningful to segment the labour market according to whether or not the workers belong to trade unions, and the unions succeed in raising wages, benefits and other working conditions for their employed members above what they otherwise would be. In the unionized segment of the South African labour market, compensation is determined by bargaining or contract extension, and the terms agreed to are extended to all firms in the industry or region irrespective of size. Otherwise, compensation is determined by supply and demand. This, then, leads to the fundamental characterization of a segmented labour market. Labour markets are segmented when, for workers of a given type (a) some jobs are better than others in terms of wages, benefits and/or other working conditions, and (b) access to the good jobs is rationed, meaning that some workers who would like jobs in the better paying segments and who are capable of performing those jobs are able to get such jobs but others who also would like such jobs and are capable of performing them cannot

Marshall and Labour Demand in Russia: Going Back to Basics

Using a unique enterprise-level data set, which covers the regions Moscow City, Chelyabinsk, Krasnoyarsk and Chuvashia and the three sectors manufacturing and mining, construction and trade and distribution, we estimate Russian labour demand equations for the year 1997. The most important conclusion that can be drawn is that labour demand is inelastic in international perspective if we estimate a labour demand equation for all regions and all sectors combined. So, Russian MLEs well into the transition still exhibit peculiar behaviour as far as wage employment trade-offs are concerned. We try to relate this inelastic labour demand to basic neoclassical theory by testing Marshall's rules of derived demand. Our results show that testing these rules seems a promising avenue for establishing some of the driving forces, which are behind labour demand in Russia.labour demand, rules of derived demand, enterprise performance, transition to a market economy

An Econometric Model of Employment in Zimbabwe's Manufacturing Industries

This paper is concerned with the estimation of an employment relationship and employment efficiency under production risk using a panel of Zimbabwe's manufacturing industries. A flexible labour demand functions are used and consist of two parts: the traditional labour demand function and labour demand variance function. Labour demand is a function of wages, output, quasi-fixed inputs and time variables. The variance function is a function of the determinants of labour demand and a number of production and policy characteristic variables. It appears in a multiplicative form with the demand function and it accommodates both positive and negative marginal effects with respect to the determinants of the variance. A multi-step procedure is used to estimate the parameters of the model. Estimation of industry and time-varying employment efficiency is also considered. Employment efficiency is defined in terms of the distance from the employment frontier defined as minimum employment required to produce a given level of output. The empirical results show that the average employment efficiency is 92%.Labour demand; variance; efficiency; manufacturing industries; Zimbabwe;

The Impact of Trade and Outsourcing on Skilled and Unskilled Labour in France*

This paper investigates the effect of trade and outsourcing on demand for labour in France, including the role of exports. We analyse the impact of outsourcing - imported inputs - on unskilled labour in manufacturing industry during 1990-2002 and find that outsourcing has a significant negative effect on the relative demand for unskilled labour. This could be potentially mitigated by exports in manufacturing, which are found to increase the demand for unskilled labour. Our analysis of economy- wide impact of trade over 1970-2003 finds that imported goods and services, as well as total exports, contribute to the skilled-unskilled differential by increasing the demand for skilled labour. These trade variables, however, have no statistically significant impact on the demand for unskilled labour.International trade, outsourcing, skill differentials, production theory

TRANSITIONING TO A LOW-CARBON IRISH ECONOMY: AN ANALYSIS OF REGIONAL LABOUR IMPACTS. RESEARCH SERIES NUMBER 100 December 2019

Ireland has legally binding emissions reduction targets for 2020 and 2030. To achieve these targets and to become a low-carbon economy, the government uses carbon taxation as one of the primary policy tools. In addition, ceasing of peat and coal, which are the most polluting energy commodities from electricity production, is planned. However, given the concentration of specific production sectors in specific regions, there is a concern that the labour impacts for certain regions/counties will be high, compared to others. This report explores the projected county-level variation in labour demand impacts for 2030, following an increase in the carbon tax and removal of coal and peat in electricity production. More specifically, the electricity production sector will gradually phase out coal and peat from the production process, their usages will be terminated in 2026 and 2029, respectively, and the carbon tax will increase C6 annually starting from 2020 and reach C80 in 2029 per tonne CO2-eq. We combine the labour demand output from the Ireland Environment, Energy and Economy (I3E) computable general equilibrium (CGE) model, with regional employment statistics to highlight sectoral and county-level variation. Firstly, we assess the sectoral labour demand impacts, and these sectoral results are then “shared out” to evaluate labour demand impacts for each county

Sequentiality versus Simultaneity: Interrelated Factor Demand.

A structural model is developed and estimated by a maximum likelihood routine to investigate interrelated factor demand subject to nonconvex adjustment costs. The dataset concerns Norwegian plants operating in manufacturing industries and it covers the period 1993-2005. The estimates indicate that it is advantageous to adjust the stock of labour and capital simultaneously. The cost advantage of simultaneous changes is small for capital but is large for labour. The empirical results suggest that when estimating separate factor demand models the bias of parameter estimates is most severe in case of labour demand.Factor Demand; Labour; Capital; Interrelation; Nonconvex Adjustment Costs.

'Marginal Employment' and the Demand for Heterogenous Labour: Empirical Evidence from a Multi-factor Labour Demand Model for Germany

We develop a structural multi-factor labour demand model which distinguishes between eight labour categories including non-standard types of employment such as marginal employment. The model is estimated for both the number of workers and total working hours using a new panel data set. For unskilled and skilled workers in full-time employment, we find labour demand elasticities similar to previous estimates for the west German economy. Our new estimates of own-wage elasticities for marginal employment range between -.4 (number of male workers in west Germany) to -1 (working hours for women). We illustrate the implications of these estimates by simulating the likely labour demand effects of the recent increase of employers' social security contributions (SSC) on marginal employment in Germany.Multi-factor labour demand for heterogenous labour, marginal employment