Australian Productivity Commission

Estimating Input Demand Elasticities for Australia

Email address: sstone@pc.gov.au

JEL Classifications: J23,C30

Abstract:
The view that recent changes in the distribution of income primarily reflect technology is well accepted among labour economists. Less established is how this skill biased technical change works its way into economic decision making. Capital embodied technical change has been argued to be one source. Thus, ‘modern’ capital equipment is said to be more skilled labour ‘biased’. In order to investigate this claim, we need to establish the degree of substitutability between various types of labour and capital. Eleven years (1986-1996) of wage and rental data was collected for 12 sectors of the Australian economy. Using a translog cost function analysis, own- and cross-partial elasticities of factor demand are estimated. Full information estimation (SUR) procedure is used in estimating a system of factor shares. Elasticities are found for each of the three types of inputs (skill, unskilled and capital) economy wide, as well as for each sector.

PDF file of paper: stone.pdf

Session: Production, Consumption and Productivity

Time: Friday, 6 July, 3:30pm - 5pm

Room: F