This paper examines the effects that the increasing demand for purchased services and imports of intermediate materials has on the demand for different skill levels in the manufacturing sector. We derive and estimate a factor demand system based on the generalised Box-Cox cost function nesting both the normalised quadratic and the translog functional form. We find that the effects of output and capital growth are more important in explaining the demand for heterogeneous labour than substitution effects between labour and non-labour inputs. Similarly, the increasing use of both imported materials and purchased services is rather a consequence of output growth than input substitution.
Falk, Martin and Bertrand Koebel (2002), Outsourcing, Imports and Labour Demand, Scandinavian Journal of Economics 104,2