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Measuring the effect of globalization on labour demand elasticity: An empirical application to OECD countries

Giovanni Bruno (), Anna M. Falzoni and Rodolfo Helg ()
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Anna M. Falzoni: Università degli Studi di Bergamo

No 153, KITeS Working Papers from KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy

Abstract: There are various paths through which globalization is channelled to the labour market. One of these is the effect on labour demand elasticity. Trade might induce an increase in this elasticity via a scale effect due to the increased competition on the output market and/or via a substitution effect generated by expanding the firm production possibility set to include additional inputs. The focus of this paper is centred on the latter channel of transmission. A labour demand equation is obtained from the solution of a firm’s cost minimization problem. The impact of globalization on domestic employment is not restricted to a wage elasticity effect, but also allows for a direct effect with globalization acting as a domestic labour demand shifter. A theoretically consistent labour demand is estimated using a industry-year panel from a number of industrialised countries, including major European countries, Japan and the US over the period 1970-96. Overall we find sig-nificant substitution effect of trade on labour demand elasticity only for the U.K. For Italy and France the evidence is mixed. In all remaining countries globalization has not significantly a .ected labour demand elasticity.

Keywords: Trade; Labor demand. (search for similar items in EconPapers)
JEL-codes: F16 J23 (search for similar items in EconPapers)
Date: 2004-02, Revised 2004-02
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