IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/46688.html
   My bibliography  Save this paper

Labour substitution and the scope for military outsourcing

Author

Listed:
  • MacDonald, Peter

Abstract

Abstract This article argues that the observed elasticity of substitution between military and civilian labour within a defence ministry provides an indication of the likely scope for efficient outsourcing of military services. Military labour can only be employed by government, so outsourcing military services to private firms requires replacement of military labour with civilian labour. The degree to which such substitution occurs under in-house provision offers an insight into how much may be undertaken through outsourcing without compromising operational effectiveness. We obtain an estimate of the elasticity of substitution between military and civilian labour in the UK over the period 1970 and 2008 by estimating the Ministry of Defence's relative demand for military labour. Instruments based on the relative supply of military labour are used to account for the endogeneity of relative wages. The long run elasticity is estimated to be around 0.75, though a value of 1 cannot be rejected. The estimated elasticity suggests that there remains scope for further outsourcing of military activities in the UK.

Suggested Citation

  • MacDonald, Peter, 2013. "Labour substitution and the scope for military outsourcing," MPRA Paper 46688, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:46688
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/46688/1/MPRA_paper_46688.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2003. "Instrumental variables and GMM: Estimation and testing," Stata Journal, StataCorp LP, vol. 3(1), pages 1-31, March.
    2. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 35-78.
    3. Kleibergen, Frank & Paap, Richard, 2006. "Generalized reduced rank tests using the singular value decomposition," Journal of Econometrics, Elsevier, vol. 133(1), pages 97-126, July.
    4. David Martimort & Flavio Menezes & Myrna Wooders & ELISABETTA IOSSA & DAVID MARTIMORT, 2015. "The Simple Microeconomics of Public-Private Partnerships," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(1), pages 4-48, February.
    5. Martimort, David & Pouyet, Jerome, 2008. "To build or not to build: Normative and positive theories of public-private partnerships," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 393-411, March.
    6. Siu Fai Leung & Shihti Yu, 2001. "The sensitivity of the RESET tests to disturbance autocorrelation in regression analysis," Empirical Economics, Springer, vol. 26(4), pages 721-726.
    7. Stevens, Barbara J, 1978. "Scale, Market Structure, and the Cost of Refuse Collection," The Review of Economics and Statistics, MIT Press, vol. 60(3), pages 438-448, August.
    8. David Martimort & Philippe De Donder & Etienne Billette de Villemeur, 2005. "An Incomplete Contract Perspective on Public Good Provision," Journal of Economic Surveys, Wiley Blackwell, vol. 19(2), pages 149-180, April.
    9. Antonio Ciccone & Giovanni Peri, 2005. "Long-Run Substitutability Between More and Less Educated Workers: Evidence from U.S. States, 1950-1990," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 652-663, November.
    10. Henry Ohlsson, 2003. "Ownership and Production Costs: Choosing between Public Production and Contracting-Out in the Case of Swedish Refuse Collection," Fiscal Studies, Institute for Fiscal Studies, vol. 24(4), pages 451-476, December.
    11. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    12. Paul H. Jensen & Robin E. Stonecash, 2005. "Incentives and the Efficiency of Public Sector-outsourcing Contracts," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 767-787, December.
    13. Warner, John T., 1995. "The economics of military manpower," Handbook of Defense Economics,in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 13, pages 347-398 Elsevier.
    14. Domberger, S & Meadowcroft, S & Thompson, D J, 1986. "Competitive tendering and efficiency: the case of refuse collection," Fiscal Studies, Institute for Fiscal Studies, vol. 7(4), pages 69-87, November.
    15. Carol Propper & Simon Burgess & Denise Gossage, 2008. "Competition and Quality: Evidence from the NHS Internal Market 1991-9," Economic Journal, Royal Economic Society, vol. 118(525), pages 138-170, January.
    16. Pesaran, M Hashem & Taylor, Larry W, 1999. " Diagnostics for IV Regressions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(2), pages 255-281, May.
    17. Peter Macdonald, 2006. "Capital-Labour Substitution In Uk Armed Forces," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(2), pages 141-153.
    18. Eric Fredland, 2004. "Outsourcing Military Force: A Transactions Cost Perspective on the Role of Military Companies," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(3), pages 205-219.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    defence; contracting out; military labour;

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:46688. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.