Demand for Labour in Manufacturing Sector: A Decomposition Analysis for Developing Countries

Abstract

One of the leading issues of the development economics has been the scope of labour absorption in the industrial sector of developing countries. Vast Literature on the issue reveals that the demand for labour is determined by technology, production, externalities and substitution of inputs. This study examines the demand for labour in the manufacturing sector of ten developing economies by estimating the effects of three major factors namely, price induced labour saving market mechanism and biasness of technology, possibility of Input substitution and level of output. The demand for labour is estimated using translong production function which is further decomposed Into: a) change in Input prices, b) change in output and c) change in technology. The estimation has been carried out using panel data of 28 large manufacturing Industries for a period of twelve years. The results of the study show that a) the contribution of technology to demand for labour is universally negative, b) the expansion of output has positive effect on labour demand, c) the input substitution does not show any definite trend and, d) the overall Impact on the demand for labour has been negative.