The Role of Technology Change and Trade in Changing Relative Labor Demand in Hungary

This paper examines the influence of capital accumulation and imports on the relative demand for skilled and unskilled labor in Hungary between 1980 and 2002. Historical data show that both relative employment and wages of skilled labor were favorably influenced by the changes of the past decades, when the Hungarian economy transitioned from a centrally planned to a market-led regime. The international literature suggests that skill-biased technology development and increasing trade resulted in similar changes in many developed and less-developed economies. Because only limited research has been done in this respect in Hungary, the paper investigates whether these factors had similar effects on relative labor demand in Hungary to those observed in the international literature. Compared to the results of relevant Hungarian studies, the most important finding of the paper is that, during past decades, capital and skilled labor were used not only as relative complements in production, but as absolute complements. The paper employs a framework that allows for the fulfillment of the appropriate curvature conditions required by the underlying economic theory.