A closer look at the skilled labor demand increase in Brazil

Abstract

Purpose The purpose of this paper is to evaluate skilled labor demand determinants in Brazil, considering alternatives explanations: changes in relative wages, non-homothetic technology output growth and skill-biased technical change. Design/methodology/approach This study relies on a rich and unique matched employer-employee data set for manufacturing sector, from 1996 to 2003. The analysis considers a translog functional form labor demand system estimated using seemingly unrelated regression and instrumental variables to control for possible measurement errors and wages and output endogeneity. Findings The demand function estimates suggest that: labor demand underlying technology is non-homothetic, research and development investment is biased toward skilled workers, the non-homothetic technology is not skill biased so output changes contributed positively for skilled labor increase, relative wages played a significant role and international trade has little explanatory power explaining labor demand shifts. Originality/value This is the first paper that considers alternative explanations for the increase in the demand of skilled workers for manufacturing in Brazil simultaneously: changes in relative wages, output changes with non-homothetic technology, skill-biased technical change and, to a lesser extent, international trade. The study challenges current empirical evidence that considers trade and trade liberalization as the main factor explaining labor demand shifts.