Medium-skilled Labour Research Articles

Human Capital, Economic Growth, and Inequality in China

China's rapid growth was fueled by substantial physical capital investments applied to a large stock of medium skilled labor acquired before economic reforms began. As development proceeded, the demand for high skilled labor has grown, and, in the past decade, China has made substantial investments in producing it. The egalitarian access to medium skilled education characteristic of the pre-reform era has given rise to substantial inequality in access to higher levels of education. China's growth will be fostered by expanding access to all levels of education, reducing impediments to labor mobility, and expanding the private sector.

The Future of the Fence Around the EU Labour Market

The paper investigates the welfare aspects of the European Union's restrictions on labour immigration, especially the restrictions on the free movement of medium- and low-skilled labour from outside the EU. The welfare implications of restrictive labour immigration are found to be considerable, both within and outside the EU. The paper subsequently discusses the future pressure on the 'fence around the EU labour market', given inside factors (population aging, pressure from employers seeking cheap labour) and outside factors (decreasing fixed costs of illegal immigration, more economic and political refugees). Towards 2030, the forseeable pressures on the 'fence' could become too much, causing a chaotic collapse. The paper suggests ways for an orderly transition in which selective immigration licenses for low- and medium skilled labour could have an important role.

The Impact of Crisis-Related Changes in Trade Flows on Employment, Incomes, Regional and Sectoral Development in Brazil

This study uses the STAGE-LAB Computable General Equilibrium Model to analyse the potential impact of the trade shock associated with the Great Recession on labour and household income in Brazil. Our model assumes that high skilled labour is fully employed, while there is oversupply of labour in the market for medium skill and low skilled labour. Labour market adjustment for high skilled labour thus takes the form of wage adjustments. For low and medium skilled workers, instead, labour market adjustments lead to changes in employment levels. The Social Accounting Matrix used in our study allows us to distinguish seven regions within Brazil and we allow for the possibility that high skilled labour migrates across regions in response to wage changes. We consider the trade shock to be temporary and therefore assume that capital and land are fixed by activity. For our base case scenario we find a modest but appreciable GDP reduction of 2.1 per cent caused by reductions in trade flows during the crisis. Average returns to land and to capital increase during the period in some regions. All types of labour lose out in the crisis, with low and medium skilled labour losing more than high skilled labour.

International outsourcing and the demand for skills

This paper explores the impact of international outsourcing on the demand for skills in three small and open EU economies. A model of variable costs and factor demand functions for different skill levels and imported as well as domestic materials are constructed. International outsourcing is treated directly as a substitution process between labour of different skills and imported inputs. The direct consequence of international outsourcing for labour is measured by the cross price elasticities. These cross price elasticities indicate a negative outsourcing impact on low- and medium-skilled labour in the three countries and on high-skilled labour in two out of the three countries. This outsourcing effect on labour is compared with the direct effect of embodied technical change and of the technical change bias. International outsourcing has a more unambigous and significant negative impact on labour than technical change. Technical change is either labour using (embodied technical change) or only slightly biased in favour of high-skilled labour. When the cost savings effect of international outsourcing is taken into account, an indirect positive stimulus for all skill categories arises from a greater demand for goods. It can be shown, that this indirect positive effect can compensate for a large part of the negative substitution impact of international outsourcing on labour.

Correlation Between the Structure of Education and the Development Level - A Short Review

The present paper underlines the fact that the resources allocated to education and the structure of the educational act must be correlated to the level of development of a country, at a certain moment. For Romania, the conclusions impose a reallocation of resources towards the secondary education and a reorganization of the tertiary education. The developing countries need medium skilled labor force because the emerging markets do not have the financial and technological capacity to sustain innovative fields with highly skilled workers. Romania is in this last situation. Yet, the educational system has continued producing university graduates that the economy could not absorb. Consequently, a large part of them have emigrated, looking for a proper compensation of their contribution to the production system. So, the main challenges for Romania would be to match the specializations to the market demand and to substantially reduce the public spending for the tertiary education.

Distant labour supply, skills and induced technical change

To analyze the consequences of new technologies, which make it possible to employ distant labour, we model a developed country with high- and medium-skilled labour interacting with an emerging market economy (EME) with medium- and low-skilled labour. Expansion in labour supply induces medium-skill biased technical change, which raises the demand for such labour. As a result, inequalities tend to fall in the developed country, skill premiums rise marginally in the EME, but equality rises because labour employed in the low-skilled sector shrinks. Inequality falls across the countries since average wages, information and access rise in the EME.

Distant Labour Supply, Skills and Induced Technical Change

To analyze the consequences of new technologies, which make it possible to employ distant labour, we model a developed country with high and medium-skilled labour interacting with an emerging market economy (EME) with medium and low-skilled labour. Expansion in labour supply induces medium-skill biased technical change, which raises the demand for such labour. As a result, inequalities tend to fall in the developed country, skill premiums rise marginally in the EME, but equality rises because labour employed in the low-skilled sector shrinks. Inequality falls across the countries since average wages, information and access rise in the EME.

A Dynamic Heterogeneous Labour Demand Model for German Manufacturing

This paper presents an application of the Generalised Error Correction Model (GECM) for heterogeneous factor demands based on the quadratic cost function. Using data for 26 West German manufacturing industries over the period 1976-1995, it turns out that less general specifications such as the partial adjustment and the static AR(1) model are rejected. Furthermore, both shortrun and long-run labour demands of different skill classes are inelastic. Unskilled labour is found to have a somewhat higher wage elasticity in absolute terms than medium-skilled labour. A small part of shift in demand away from unskilled labour can be explained by the substitutability relationship between intermediate materials and unskilled labour. Between 6 and 13 percent of the observed shift towards high-skilled labour can be explained by capital accumulation.

Curvature Conditions and Substitution Pattern Among Capital, Materials and Heterogeneous Labour

This study deals with the determinants of factor demand in 27 industries of the manufactoring sector during the period 1978 to 1990. Using a quadratic cost function, six production factors are distinguished: capital, energy, three types of labour and intermediate materials. A parametric test of the concavity of the cost function in prices is provided and price elasticities are compared when curvature conditions are imposed or not. The results show, firstly, that in general estimates do not appear very sensitive to imposing theoretical restrictions implied by optimising behaviour. Secondly, demand for unskilled labour is relatively elastic to wage increases compared to the higher skill levels. Third, the substitutability is stronger between unskilled and medium skilled labour than any other pairs of inputs.

A dynamic heterogeneous labour demand model for German manufacturing

This paper presents an application of the Generalised Error Correction Model (GECM) for heterogeneous factor demands based on the quadratic cost function. Using data for 26 West German manufacturing industries over the period 1976-1995, it turns out that less general specifications such as the partial adjustment and the static AR(1) model are rejected. Furthermore, both shortrun and long-run labour demands of different skill classes are inelastic. Unskilled labour is found to have a somewhat higher wage elasticity in absolute terms than medium-skilled labour. A small part of shift in demand away from unskilled labour can be explained by the substitutability relationship between intermediate materials and unskilled labour. Between 6 and 13 percent of the observed shift towards high-skilled labour can be explained by capital accumulation.

Income Distribution and the Demand Constraint

This paper argues that the interaction between inequality and the demand patterns for goods is a potential source of persistent inequality. Income distribution, in the presence of non-homothetic preferences, affects the demand for goods and, due to differences in factor intensities across sectors, it alters the return to factors of production and the initial distribution of income. Low inequality leads to high demand for medium skilled intensive goods, providing a bridge over which low skill dynasties may transition to the high-skilled sector in the long run. Under high inequality however, the initial lack of demand for medium skilled labor breaches this bridge from poverty to prosperity and inequality persists. This paper examines the dynamic interaction between the income distribution in an economy and patterns of demand. It shows that such interaction is a potential source of persistence in initial inequality, that affects (human) capital accumulation and growth. These effects arise because of two factors. First, with non-homothetic preferences, the income distribution affects the pattern of demand for goods and services. Second, due to differences in factor intensities of goods, this demand pattern affects the distribution of factor returns as well. Low initial inequality, through greater demand for less skilled labor, creates a virtuous cycle that carries low income families from poverty to prosperity. Under high initial inequality however, a lack of such demand vitiates this virtuous cycle, resulting in low human capital accumulation and growth. Links between income inequality and growth have received much attention in the the- oretical literature in recent years. Benabou (1996) identifies two broad strands of this literature—one that links inequality and growth through political economy aspects of de- velopment and the other, through the role of capital market imperfections (CMI). Our set up here is closer to the latter approach, particularly to the work on inequality and human capital accumulation. Briefly, the CMI approach examines how the lack of easy access to credit can affect aggregate capital investment and economic growth under high inequality. It has been shown that even though poor families could be hindered by credit constraints in the short run, they could still catch up with richer families in the long run by gradually accumulating (human) capital over time. 1 Yet, such catch up will not happen if there are indivisibilities in the initial level of investment necessary to acquire any human capital. This is because poor families may never accumulate enough to meet such a threshold. 2