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Trade and Technological Explanations for Changes in Sectoral Labour Demand in OECD Economies

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  • Gerry Boyle;

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  • Pauline McCormack
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    Abstract

    This paper sets out to establish the main determinants of variations in the demand for aggregate labour in manufacturing and service sectors (22) for a cross-section of OECD countries (14). We employed a relatively new panel data set in our analysis, the OECD's International Sectoral Data Base. Preliminary analysis revealed that the "within" sector variation in the wage share dominated overall variation for most countries and time periods. A separate dynamic model was thus generated to explain the "within" sector variation in the wage share. This model contained real wages, output, the capital stock, technological change (total factor productivity) and trade (the imports to value-added ratio) as independent variables. In addition we also interacted the wage level with these explanatory variables on the presumption that skill is positively correlated with the level of wages. Because of the potential for simultaneity bias, estimation was conducted by IV and OLS. The main findings were that the capital stock and technological change were the main determinants of shifts in labour demand. While some countries reported the trade variable as significant its influence was only of slight importance in most cases. The interaction terms proved to be significant in a large number of countries. We found some evidence that capital and technological were complementary with skill. Overall we found broad agreement across countries in the factors which influence labour demand despite considerable differences in the cross-country nature of labour market institutions.

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    Bibliographic Info

    Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n770598.

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    Length: 41 pages
    Date of creation: May 1998
    Date of revision:
    Handle: RePEc:may:mayecw:n770598

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    Postal: Maynooth, Co. Kildare
    Phone: 353-1-7083728
    Fax: 353-1-7083934
    Web page: http://economics.nuim.ie
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    Keywords: labour demand; technological change; trade; OECD countries;

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    1. Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
    2. Stephen Machin & A Ryan & John Van Reenen, 1996. "Technology and Changes in Skill Structure: Evidence from an International Panel of Industries," CEP Discussion Papers dp0297, Centre for Economic Performance, LSE.
    3. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
    4. Leamer, Edward E, 1996. "Wage Inequality from International Competition and Technological Change: Theory and Country Experience," American Economic Review, American Economic Association, vol. 86(2), pages 309-14, May.
    5. Krugman, Paul, 1993. "Inequality and the Political Economy of Eurosclerosis," CEPR Discussion Papers 867, C.E.P.R. Discussion Papers.
    6. Welch, F, 1970. "Education in Production," Journal of Political Economy, University of Chicago Press, vol. 78(1), pages 35-59, Jan.-Feb..
    7. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring.
    8. Steiner, Viktor & Wagner, Kersten, 1997. "Relative Earnings and the Demand for Unskilled Labor in West German Manufacturing," ZEW Discussion Papers 97-17, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    9. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    10. David A. Brauer & Susan Hickok, 1995. "Explaining the growing inequality in wages across skill levels," Economic Policy Review, Federal Reserve Bank of New York, issue Jan, pages 61-75.
    11. Matthew J. Slaughter, 1997. "International Trade and Labor-Demand Elasticities," NBER Working Papers 6262, National Bureau of Economic Research, Inc.
    12. Griliches, Zvi, 1969. "Capital-Skill Complementarity," The Review of Economics and Statistics, MIT Press, vol. 51(4), pages 465-68, November.
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    Cited by:
    1. Paolo Figini & Holger Görg, 1998. "Multinational Companies and Wage Inequality in the Host Country: The Case of Ireland," Economics Technical Papers 9816, Trinity College Dublin, Department of Economics.

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