How Comparable are Labor Demand Elasticities across Countries?
The authors present the first comparable dynamic panel estimates of labor demand elasticity, using data from Chile, Colombia, and Mexico. They examine the benefits, and limits of the Arellano, and Bond GMM in differences estimator, and the Blundell...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/08/1570688/comparable-labor-demand-elasticities-across-countries http://hdl.handle.net/10986/19565 |
| Summary: | The authors present the first comparable
dynamic panel estimates of labor demand elasticity, using
data from Chile, Colombia, and Mexico. They examine the
benefits, and limits of the Arellano, and Bond GMM in
differences estimator, and the Blundell, and Bond GMM system
estimator. They also explore the limitations of such
measures for diagnosing flexibility in the labor market.
Even accounting for the large variance induced by different
estimation techniques, one probably cannot say much about
the flexibility of different labor markets based on
comparisons of the estimated elasticity of demand. Colombia,
for example, which has severe restrictions on firing
workers, has much higher long-run wage elasticity than
Chile, which has no such restrictions. Three factors make
such comparisons difficult: 1) Elasticity differ greatly
across industries, so the composition of industry in each
country probably affects the aggregate elasticity. Estimates
are extremely dependent on the estimation approach, and
specification. 2) Even for specific industries, the
elasticity of labor demand differs greatly across countries.
And the authors find no common pattern of country rankings
across industries, which suggests that those differences
cannot be attributed solely to systematic characteristics of
the countries' labor markets. 3) Estimates for Chile
over fifteen years, suggest substantial, and significant
variations in elasticity over time. So comparisons across
countries depend not only on the industries involved, but
also on the sample periods of time used. Estimates change
greatly, if not secularly, with sample period. |
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