Substitution Elasticities for Educated Labour

Abstract

This chapter discusses the substitution elasticities for educated labor. Economists have long been interested in knowing how responsive the demand for a factor of production, for example, labor, is to a change in its price. The answer to this question clearly depends, at least in part, upon how easily factors of production can be substituted for one another. To consider substitution possibilities between different kinds of educated labor one has to face the fact that there must now be at least three factors of production: physical capital or, more generally, non-labor inputs; educated labor; and less educated labor. Dealing with substitution between a given pair of factors of production in a world with more than two factors of production means that one has to make an assumption about the remainder. Available evidence on the degree of substitutability between labor inputs and other factors would support neither naive rate-of-return analysis nor fixed coefficients manpower requirements.