The wage elasticity of labour demand in the Uruguayan manufacturing sector after re-unionisation: new results

This paper provides new evidence on the magnitude of the elasticity of substitution between labour and capital for the Uruguayan manufacturing sector. Labour demand is derived using a right-to-manage model estimated for the period 1985-1997 using data for six industries. The evidence found suggests that the elasticity is generally less than 1. Differences by industry and in time are also found. The latter result may be linked both to the integration process underwent by Uruguay in the nineties and to the changes in the bargaining framework that took place in that same period. As a nested CES production function is used to derive the labour demand, the partial elasticity of substitution between production and non-production workers is also calculated, being its magnitude quite low. Finally, the model was estimated using data from industrial surveys (gathered from firms) and from household surveys. The comparison of results shows that when using industrial surveys data the estimated elasticities are higher than when using household surveys data. The result is probably related to the different coverage of both sources, as well as to the different accuracy reached in measuring wages.