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How comparable are labor demand elasticities across countries?

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  • Fajnzylber, Pablo
  • Maloney, William F.

Abstract

The authors present the first comparable dynamic panel estimates of labor demand elasticity, using data from Chile, Colombia, and Mexico. They examine the benefits, and limits of the Arellano, and Bond GMM in differences estimator, and the Blundell, and Bond GMM system estimator. They also explore the limitations of such measures for diagnosing flexibility in the labor market. Even accounting for the large variance induced by different estimation techniques, one probably cannot say much about the flexibility of different labor markets based on comparisons of the estimated elasticity of demand. Colombia, for example, which has severe restrictions on firing workers, has much higher long-run wage elasticity than Chile, which has no such restrictions. Three factors make such comparisons difficult: 1) Elasticity differ greatly across industries, so the composition of industry in each country probably affects the aggregate elasticity. Estimates are extremely dependent on the estimation approach, and specification. 2) Even for specific industries, the elasticity of labor demand differs greatly across countries. And the authors find no common pattern of country rankings across industries, which suggests that those differences cannot be attributed solely to systematic characteristics of the countries'labor markets. 3) Estimates for Chile over fifteen years, suggest substantial, and significant variations in elasticity over time. So comparisons across countries depend not only on the industries involved, but also on the sample periods of time used. Estimates change greatly, if not secularly, with sample period.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2658.

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Date of creation: 31 Aug 2001
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Handle: RePEc:wbk:wbrwps:2658

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Keywords: Economic Theory&Research; Labor Policies; Banks&Banking Reform; Environmental Economics&Policies; Decentralization; Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Inequality; Municipal Financial Management;

References

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  1. Bhalotra, Sonia R, 1998. "The Puzzle of Jobless Growth in Indian Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(1), pages 5-32, February.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  3. Timothy Dunne & Mark J Roberts, 1993. "The Long-Run Demand for Labor: Estimates From Census Establishment Data," Working Papers 93-13, Center for Economic Studies, U.S. Census Bureau.
  4. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 87(1), pages 115-143, August.
  5. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, Elsevier, vol. 31(1), pages 93-118, February.
  6. Sosin, Kim H & Fairchild, Loretta G, 1984. "Nonhomotheticity and Technological Bias in Production," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 44-50, February.
  7. Hahn, Jinyong, 1999. "How informative is the initial condition in the dynamic panel model with fixed effects?," Journal of Econometrics, Elsevier, Elsevier, vol. 93(2), pages 309-326, December.
  8. Maloney, William F. & Pontual Ribeiro, Eduardo, 1999. "Efficiency wage and union effects in labor demand and wage structure in Mexico - An application of quantile analysis," Policy Research Working Paper Series 2131, The World Bank.
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Citations

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Cited by:
  1. Castro, Lucio & Saslavsky, Daniel, 2008. "Trade with China and India and Manufacturing Labour Demand in Argentina," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Luis Eduardo Arango & Paola Montenegro & Nataly Obando, . "El desempleo en Pereira: ¿sólo cuestión de remesas?," Borradores de Economia 636, Banco de la Republica de Colombia.
  3. Hakkala, Katariina & Heyman, Fredrik & Sjöholm, Fredrik, 2007. "Cross-Border Acquisitions, Multinationals and Wage Elasticities," Working Paper Series, Research Institute of Industrial Economics 709, Research Institute of Industrial Economics.
  4. Maloney, William F. & Nunez, Jairo & Cunningham, Wendy & Fiess, Norbert & Montenegro, Claudio & Murrugarra, Edmundo & Santamaria,Mauricio & Sepulveda, Claudia, 2001. "Measuring the impact of minimum wages : evidence from Latin America," Policy Research Working Paper Series 2597, The World Bank.
  5. Peter Nunnenkamp & José Eduardo Alatorre Bremont, 2007. "FDI in Mexico: An Empirical Assessment of Employment Effects," Kiel Working Papers 1328, Kiel Institute for the World Economy.

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