Flexibility of Firms' Labor Demand: Substitutability or Complementarity
AbstractBased on merged data from the IAB-establishment panel survey and the historic files of the employment statistics register, a translog cost system was estimated for six qualification groups (blue- and white-collar workers stratified into unskilled, skilled and highly skilled employees) for West German production industries for the year 1995. Substitution possibilities between differently qualified employees are investigated at the establishment level. The derived substitutional relationships within the blue-collar workers were very similar to those within the white collar workers. Skilled employees and, to a lesser extent, highly skilled employees are substitutes for the unskilled. This could at least partly explain the rise in unemployment amongst the unskilled. In contrast, the demand for skilled workers does not depend on the wage of the highly skilled employees and vice versa. The frequently cited results that the own-wage demand elasticity decreases with skill, can be confirmed between skilled and highly skilled employees, but not between skilled and unskilled employees. The elasticities of substitution between blue collar and white collar workers are relatively low; unskilled, skilled and highly skilled blue collar workers are found to be complements to the analogue group of white-collar workers. Finally, the evidence does not favor the capital-skill complementarity hypothesis.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 219 (1999)
Issue (Month): 1+2 (July)
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Demand for labor; labor costs; substitution; firm behavior;
Find related papers by JEL classification:
- C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
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- Frondel, Manuel & Schmidt, Christoph M., 2001.
"Rejecting capital-skill complementarity at all costs,"
ZEW Discussion Papers
01-27, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Frondel, Manuel & Schmidt, Christoph M., 2003. "Rejecting capital-skill complementarity at all costs," Economics Letters, Elsevier, vol. 80(1), pages 15-21, July.
- Frondel, Manuel & Schmidt, Christoph M., 2001. "Rejecting Capital-Skill Complementarity at all Costs," IZA Discussion Papers 316, Institute for the Study of Labor (IZA).
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