LABOUR SUBSTITUTION IN DENMARK
| Date | 01 February 1993 |
| DOI | http://doi.org/10.1111/j.1468-0084.1993.mp55001007.x |
| Published date | 01 February 1993 |
| Author | Ole Risager |
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 55,1(1993)
0305-9049 $3.00
LABOUR SUBSTITUTION IN DENMARK
Oie Risager
I. INTRODUCTION
This paper investigates Danish firms' demand for skilled and unskilled
labour. The purpose is to give answers to the following simple - yet quite
important - questions: How sensitive is the composition of labour demand
to changes in the relative wage, that is, is there any evidence of substitution
between skilled and unskilled labour? How does an increase in the raw
material price, like the one associated with the outbreak of the Korean War in
1950 or with the OPEC shock in 1973 and 1979, influence the composition
of labour demand? Based on the answers to these questions the paper
attempts to explain why unskilled workers' employment performance has
been less favourable as compared to the employment performance of skilled
workers.
A related but more difficult question is why the unemployment rate for
unskilled workers is much higher than for skilled workers, which is the case
not only for Denmark (see Andersen and Risager, 1990) but also for a
number of other countries (see Jackman et al., 1991). To explain this, one
needs two additional elements, namely, also a model for labour supply and
the determination of wages. In this perspective the paper provides the first
step in an explanation of the large unemployment differences across skills.
Since the paper mainly analyses the optimal input mix in the long run, it
uses the cointegration technique developed in Johansen (1988), and further
extended and applied in Johansen and Juselius (1990a,b). The Johansen
method is a simultaneous equation method, which uses both the short- and
long-run information in the data.
The paper is in five sections. Section II outlines the theoretical framework.
Section III describes the data. Section IV presents the cointegration analysis.
Section V interprets the results and summarizes the answers to the above
stated questions.
II. LABOUR SUBSTITUTION: THEORETICAL FRAMEWORK
In order to analyse firms' optimal input mix of skilled and unskilled labour, it
seems sensible to start with a simple model. Consider therefore a basic neo-
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