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How variable is labor input in the Italian manufacturing: the case of the pharmaceutical industry

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Abstract

The aim of this paper is to study the labor demand in the Italian manufacturing, using firm-level data on pharmaceutical industry. The Italian pharmaceutical industry is characterized by the existence of long-term labor contracts, and this fact suggests to consider labor as quasi-fixed input. In order to characterize firms’ behavior we base our analysis on the restricted Generalized Leontief cost function. The choice of this flexible functional form is due to its ability to capture the input substitution patterns in presence of more than one quasi-fixed input. Therefore demand and substitution elasticities are estimated with respect to two different theoretical models: the first, QFI(1), with capital as quasi-fixed input and the second, QFI(2), with two quasi-fixed inputs, capital and labor. The choice among the two alternative specifications is based on an elasticity comparison criterion, since the two models are not nested. Our results confirm the a priori on the labor market rigidity and point out the high heterogeneity between the firms, even controlling for size and nationality

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Bibliographic Info

Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 140.

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Length: 22 pages
Date of creation: 30 Jun 2009
Date of revision: 30 Jun 2009
Handle: RePEc:rtv:ceisrp:140

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Keywords: quasi-fixed inputs; restricted Generalized Leontief; pharmaceutical industry.;

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References

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  1. Diewert, W E, 1971. "An Application of the Shephard Duality Theorem: A Generalized Leontief Production Function," Journal of Political Economy, University of Chicago Press, vol. 79(3), pages 481-507, May-June.
  2. Vincenzo Atella & Beniamino Quintieri, 1998. "Productivity Growth and the Effects of Recessions," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 57(3-4), pages 359-386, December.
  3. Giuseppe Russo & David Veredas, 2000. "Institutional Rigidities and Employment on the Italian Labour Market: the Dynamic of the Employment in the Large Industrial Firms," CELPE Discussion Papers 53, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
  4. Lau, Lawrence J., 1986. "Functional forms in econometric model building," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 26, pages 1515-1566 Elsevier.
  5. Morrison, Catherine J, 1986. "Structural Models of Dynamic Factor Demands with Nonstatic Expectations: An Empirical Assessment of Alternative Expectations Specifications," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(2), pages 365-86, June.
  6. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
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Cited by:
  1. Carbonari, Lorenzo, 2012. "Quasi-fixed inputs in the Italian manufacturing: The case of the pharmaceutical industry," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 25(1), pages 51-69.

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