Working Paper: NBER ID: w1297
Authors: Daniel S. Hamermesh
Abstract: The theory of the demand for labor is presented along with a catalog and critique of methods that are used to estimate the parameters that describe empirical labor-demand and substitution possibilities. A critical survey is presented of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital. The main findings are: 1) The long-run constant-output demand elasticity for labor that istreated as homogeneous is between .15 and .5; 2) Own-price demand elasticities are higher for workers that have less general human capital embodied and them; 3) Skilled labor and physical capital are p-complements; and 4) More tentatively, youths and wornenare q-substitutes in production. The implications and importance for policy of these and other results are discussed. Suggestions for improving the literature and narrowing the range of knowledge of the underlying parameters, especially by concentrating more on disaggregated and even microeconornic data, are presented.
Keywords: labor demand; elasticity; human capital; wage determination
JEL Codes: J23; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage changes (J31) | labor demand (J23) |
| wage increases for low-skilled workers (J31) | decrease in demand for low-skilled workers (F66) |
| increase in skilled labor (J24) | increase in demand for physical capital (E22) |
| increase in employment of youths (J68) | decrease in employment of women (J21) |