Estimating Labor Demand Elasticities and Elasticities of Substitution in Egyptian Manufacturing Sector: A Firm-Level Static Analysis

This paper analyzes central issues of labor demand: How do wages affect employers demand for labor? And does this differ according to skill levels? Specifically, this study measures the own-wage elasticities of the demand for labor, in addition to the elasticities of substitution between different labor inputs disaggregated according to skill in Egypt. Estimates of such phenomena at the firm level are rare for developing countries in general and for Egypt in particular, and this paper happens to be the first in the Egyptian case. The evidence indicates that unskilled workers are substitutes for all other labor types, while all other three types-the semiskilled production workers, skilled workers and professionals-are complements to each other. Results also indicate that skilled workers wage elasticities are higher than those for all other types of labor. We can also conclude that labor demand in Egypt is inelastic, no matter the skill level.