Estimating the Demand for Skilled Labour, Unskilled Labour and Clerical Workers: A Dynamic Framework

We estimate long-run interrelated demand functions for skilled labour, unskilled labour, clerical labour and capital services within dynamic framework using a panel of data on Irish manufacturing sectors during the 1980s. We group the sectors into three production ?types? ? high-growth sectors, medium-growth sectors and declining sectors. The results indicate very important differences in the demand for skilled labour compared to the demand for unskilled labour and in the underlying production technologies for the three groups of sectors. The medium-growth group of sectors are characterised by a stable production technology where skilled labour, unskilled labour and capital are all limited substitutes in production and there is little evidence of skill-biased technical change or trade effects. Most of the relatively minor shifts in factor shares in this group are accounted for by movements in relative factor prices. This group numbered over half of all manufacturing employment throughout the period under study. The high-growth group of sectors has all the features of the production technology described in modern growth theory: skilled labour and capital are complements in production, technical progress is biased against unskilled labour and the skill-intensity of production is increasing over time. This favours the 'skill-biased technical change' hypothesis. And the declining group of sectors are in secular decline with no stable long-run demand for labour. This would favour the ?trade effect? hypothesis where low-skill technologies are relocating form Ireland to low-large countries because of import penetration.