Walsh, William D.
April 1977
Industrial & Labor Relations Review;Apr77, Vol. 30 Issue 3, p302
Academic Journal
The theory developed in this paper integrates the effects of three factors — the relative supply elasticities of skilled and unskilled labor, adjustments in skilled labor hiring standards, and the presence of fixed employment costs for skilled labor — on the response of skill differentials to demand variation. The analysis suggests that the short-run behavior of the skilled wage differential is not predictable — an increase (or decrease) in the rate of economic activity may widen or narrow the skill differential or leave it unchanged. It is also argued that any initial impact of demand variation on the skill differential will subsequently be reversed, either partially or fully. Empirical estimates for the Canadian manufacturing sector over the period 1953–72 are generally consistent with the theory.


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