THE LONG-RUN DEMAND FOR SKILLED AND UNSKILLED LABOR IN COLOMBIAN MANUFACTURING PLANTS

This note estimates the long-run demand for skilled and unskilled labo r using panel data for Colombian manufacturing plants. Unobserved hete rogeneity and measurement error problems that commonly arise in microd ata production estimates are examined. Output measurement errors cause OLS estimators to underestimate the output and wage response of emplo yment demand. Time-difference estimators exaggerate the measurement er ror biases. Instrumental-variable estimates of the output elasticities are 0.89 and 0.76 and own-wage elasticities are -0.42 and -0.65 for s killed and unskilled labor, respectively. The output elasticity is lar ger for skilled labor whereas the wage elasticity is larger for unskil led labor in virtually every industry.