Effects of skill biased technological change (SBTC) and trade on the relative demand for labour : a case study in Malaysia during 1983-1999

This thesis is concerned with the two main causes of wage inequality in the Malaysian labour market during the period 1983--1999. These are the impact of changes in trade patterns and technological change. These two hypotheses have been well tested using the Heckscher-Ohlin and Samuelson (HOS) models following the pioneering work by Lawrence and Slaughter (1993), Haskel and Slaughter (1998--2002) and Wood (1994). This theoretical framework provides three methodologies to measure relative demand changes namely: a decomposition approach, a cost function approach and the use of earnings equations which can then be used to examine the significance of trade and technology in determining the changes. All of these are used in the study. The study has employed two sets of data. Firstly, we have used the five-digit aggregate data for the manufacturing sector between 1983--1999 to estimate the changes that take place between, and within, industries in the sector. The second set of data comprises micro-level data from the Household Income Survey (HIS) for several years during the period 1984 to 1997. As far as the different sets of data are concerned, at a macro-level we have divided labour groups into skilled, semi-skilled and unskilled workers. On the other hand, the skills measured in the micro-level data are based on the workers' levels of education though we have based these on similar levels of skill as in the macro analysis. The main finding of this thesis is that changes in the relative demand for labour favour semiskilled workers and that technological change is the main explanation for the changing pattern of employment in the Malaysian economy. The study also finds that changes in the pattern of trade have had only small effects in explaining the changes in the relative demand for labour. Notwithstanding this, this study finds a some support for the prediction of the basic HOS model in that trade can explain the changes in industry skill wage premia at higher levels of education. In addition, and not unexpectedly, trade is also found to increase the relative demand for production workers at low levels of education. Interestingly, the study also finds that technological change is more dominant in explaining changes in the relative demand for males whilst the effects of trade are most evident for female workers. Finally, the study also shows that changes in relative demand are most evident in terms of the way they affect employment rather than through changes in wage levels.EThOS - Electronic Theses Online ServiceGBUnited Kingdo