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What is a standard estimate for the wage-elasticity of labor demand? Anyone?


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COMMENTS (11 to date)
Maniakes writes:

Among people arguing for minimum wage increases, zero.

ed writes:

In theory, in the long run, average total compensation should equal the average marginal productivity of workers, which is determined by technology. So the long-run elasticity should be close to infinite. This is why the incidence of labor taxes is thought to fall mostly on the workers.

This might fail to be true in various real world scenarios, and of course the short run will be different than the long run. But then I think then you need to define more precisely what "experiment" you have in mind.

Gabriel writes:

Are you sure you don't mean labor supply? I G.E. models there's really little room for labor demand as an independent, driving force.

Is it's labor supply then it's high, as high as 2, says Prescott. Everyone else disagrees. :-)

reason writes:

What a stupid question. As if labour was undifferentiated.

Just look at the effect of unions on wage rates and employment in different industries and you have your answer. Where unions are strong and make a big difference then the elasticity is low.

Cobb Douglas writes:

The inverse capital share.

steve writes:

See Daniel Hamermesh, Labor Demand (1993), for survey of literature. I think short-run elasticities run -0.4 to -0.5, long run elasticities around -1.

Snark writes:

In the absence of any stated conditions or parameters, it’s difficult to say. The volatility of employment will depend heavily on which industry or skill group is being considered, and whether you’re interested in the near vs. long term.

As Steve has already indicated above, elasticity measures (using the standard approach in literature, which assumes a constant returns to scale production function and two factors of production: capital and labor) range from approximately -.4 to -1.0.

Jaap Weel writes:

According to Cahuc and Zylberberg's textbook, section 2.2.1, aggregate labor demand is "negative and, in absolute value, less than 1." In particular, "Hamermesh (1993), bulding on more than 70 different studies, takes the view that the most probably interval for [the elasticity] is 0.15-0.75."

The next sentence I find remarkable, because it seems to come with no justification other than the word "surely": "If a single figure were to be chosen, 0.30 would surely be the best estimate."

Also, they note that quantity labor can be measured by the sum of hours worked or the "level of employment" (whatever that is, but presumably they define that elsewhere.) The cost of labor "is most often assimilated to the total amount of wages divided by the number of workers, or by their hours." They do not mention what definitions Hamermesh used.

Jaap Weel writes:

Also, I forgot to mention that they are talking about conditional demand, defined as demand that "represents the quantities of each input which a firm desires to utilize to attain a given level of output."

All in all, they have an entire chapter about labor demand, which I have not read, and it looks plenty complicated, dealing with long runs and short runs and deterministic environments and stochastic environments and so on.

R. Richard Schweitzer writes:

If any such "standard" could be contrived, it would have to be determined as applicable within a specific "Economic Perimeter" (transactional area). It would necessarily involve the effects from external labor supply factors (e.g., the flow of Chinese labor production from rural to urban, and onward [via goods & services] into other perimeters).

There probably is no useful or meaningful one "wage elasticity." based on "labor supply."

The idea of a "standard" seems more an attempt to cram current realities into the jargon of "teachers," which can have only the "benefit" of having students learn to think in terms chosen by those "teachers."

R. Richard Schweitzer
s24rrs@aol.com

Robin Mehra writes:

The elasticity of labor demand (η) is greater with respect to wage, the higher is the
•price elasticity of the relevant product demand
•substitutability of other factors of production
•supply elasticity of other factors of production
•cost share of labor in total production costs

Simply check Marshall _ Hicks!!

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