انباشت سرمایه انسانی در بازار کار آزاد: ایرلند در 1990s

Large-scale investment in education in Ireland began in 1967 and has led to a dramatic increase in the relative supply of skilled labour over the past four decades. Furthermore the supply of labour in Ireland is traditionally highly elastic through migration, which in the 1990s was predominantly high-skilled. This combination of rising education levels and an open labour market meant that employment and incomes rose rapidly in the 1990s, while Ireland still maintained a strong competitive position in terms of relative labour costs. In this paper we develop a new macro-economic framework to formally analyse these mechanisms. We estimate a small structural model of the Irish labour market, separately identifying high-skilled and low-skilled labour. We find that this model captures key characteristics of the Irish labour market in the 1990s.

The ‘startling turnaround in Irish economic performance’2 which began in the mid-1980s and at an accelerated pace into the 1990s saw Irish output per capita more than double between 1985 and 2000. The factors underlying this turnaround are manifold and complex, ranging from the ability of Ireland3 to attract a growing share of skill-intensive, high-productivity FDI industries (Barry and Bradley, 1997), through to accommodating domestic policies (Honohan and Walsh, 2002). Most notably this frenzied pick up in activity took place without dramatically affecting competitiveness. The performance of the labour market was central to maintaining competitiveness, the combination of rising education levels and an open labour market meant that while employment increased by one-half between 1985 and 2000 relative unit labour costs remained stable.4 In this paper we develop a new model of the Irish labour market to capture the key mechanisms through which human capital accumulation and migration ensured that the labour market facilitated Ireland's extraordinary growth performance in the 1990s. Our model includes equations for the determination of output, labour demand and labour supply in Ireland, where the equation specifications are based on the findings of previous empirical studies of the Irish economy. The key innovation in the model is that we separately distinguish between high-skilled and low-skilled labour in the labour market. This device allows us to trace the impact of human capital accumulation on the behaviour of the Irish labour market. Within the model the demand for output is driven by world demand and international competitiveness, and the demand for labour is in turn driven by this demand for output. We find that the elasticity of substitution between high-skilled and low-skilled labour is zero, and that the demand for high-skilled labour relative to low-skilled labour is driven by a strong time trend which captures the world-wide rise in demand for high-skilled labour (Nickell and Bell, 1995). In modelling the supply of high-skilled labour we assume that all migration is high-skilled, where the migration decision is modelled as a function of the Irish take home wage relative to the UK. There is no migration in the low-skilled labour market, during periods of low labour demand the replacement ratio operates as a floor on low-skilled wages so that the low-skilled labour market does not clear and the unemployment rate rises. This model captures key features of the Irish labour market in recent years. For high-skilled labour, the model assumes a constant unemployment rate with migration flows5 ensuring that the high-skilled labour market always clears.6 For low-skilled labour the situation is more complicated. Until the late 1990s, the replacement rate for low-skilled labour was above the market clearing wage rate,7 so the low-skilled labour market does not clear.8 However in more recent years the demand for low-skilled labour has risen, so that wage bargaining has become a feature of the low-skilled labour market.9 To allow for this change the model includes a threshold replacement rate below which the low-skilled labour market clears. Within the model human capital accumulation is treated as an exogenous public policy decision, the impact of this investment has been to reduce the supply of lower-skilled labour and increase the supply of more highly-skilled labour (Kearney, 1997). Recent developments in growth literature stress the role of education and human capital accumulation in the process of economic growth and development (Lucas, 1988). In Ireland there has been a dramatic rise in the educational attainment of the labour force following the introduction of free second level education in 1967 (Fig. 1).10 Many countries in Northern Europe expanded investment in human capital in the years immediately after the Second World War. This investment in human capital is reflected in the educational attainment of the older cohorts of the populations of those countries today. It was only in 1967 that free second level education was introduced in Ireland. Educational policy from the late 1960s to the mid-1980s primarily focussed on increasing participation rates (Smyth and Hannon, 2000). More recently, in 1996, the Government abolished fees for undergraduate courses at third level education. This led to a steady expansion of participation in education, initially concentrated at second level, and more recently reflected in a major expansion in third level education. Full-size image (21 K) Fig. 1. Educational attainment of the labour force. Figure options Our estimation results indicate that the elasticity of Irish output with respect to the wage is relatively high, so that Ireland's international competitiveness is an important factor determining the demand for output. Because of the openness of the high-skilled labour market we find that the wage elasticity for high-skilled labour supply is higher than that for low-skilled labour supply. Therefore the Irish labour market was able to match the strong rise in the demand for high-skilled labour in the 1990s while maintaining competitiveness. In the final section of the paper we explore the properties of the model using a number of simulations. We firstly simulate an increase in the relative supply of high-skilled labour, equivalent to an acceleration in human capital accumulation. This reduces the high-skilled wage rate, increases international competitiveness, narrows the wage gap between high-skilled and low-skilled labour and reduces overall unemployment. This simulation captures the key elements of what actually occurred in the Irish labour market in the 1990s (Barrett et al., 1999). We then turn to the simulation effects of higher immigration, contrasting the effects of high-skilled and low-skilled immigration. Our model simulation highlights the fact that the low-skilled labour market is vulnerable to migration, in particular low-skilled immigration has negative welfare effects and would promote wage dispersion, similar to the adverse wage effects of US immigration discussed in Borjas (2003). The structure of the paper is as follows. Section 2 describes the individual equations of the model in detail. Section 3 derives the underlying wage elasticities in the model. In Section 4 we perform a number of simulations to explore the key mechanisms of the model. Section 5 concludes.

In this paper we have developed a small macro-economic model to capture some key features of the Irish labour market in the 1990s. The demand for labour in the model is driven by very strong world demand for Irish output, especially in the 1990s. Furthermore the demand for labour is strongly trended towards the employment of high-skilled labour. Because Ireland is an SOE the demand for output is sensitive to international competitiveness. Against this background of strong growth in output and employment we explore the impact of rising human capital accumulation. To do this we split the labour supply decision into two mutually exclusive theatres. In the first theatre high-skilled labour is highly mobile and stays/goes in response to relative wage conditions in Ireland and abroad. This means that there is no structural unemployment in the high-skilled labour market. In the second theatre low-skilled labour is immobile, and participation is driven by the gap between the going wage and the replacement social welfare rate. If this gap is too narrow then unemployment will rise. These two markets are only linked through (exogenous) public investment in education which turns a low-skilled worker into a high-skilled worker. This framework can help interpret how the dramatic rise in employment and incomes in Ireland in the 1990s was possible without a deterioration in competitiveness. Rising education levels increased the relative supply of high-skilled labour, which together with in-migration flows of high-skilled workers meant that it was possible to meet the strong rise in demand for labour without endangering competitiveness.