An analysis of labour demand for the Maltese clothing industry

Abstract

In this study, a labour demand model for the Maltese Clothing Industry is formulated. The Ordinary Least Squares method of regression is used to estimate the labour demand elasticities with respect to the appropriate determinants. The study starts with the derivation of the model from economic theory. A description of the origin, growth and development of the Clothing Industry's structure in Malta is also given. This provides a background against which the results of the model can be viewed. The study proceeds with a description of the data. The findings of the model indicate that labour demand in the Clothing Industry is influenced by changes in Net Output and Wage Rates. No conclusive evidence was produced regarding the response of labour demand to Technological Changes. A separate equation was therefore attempted without the time variable. A partial adjustment scheme is introduced to allow for the costs of firing and hiring in the short run. This study is concluded with a brief discussion on the policy implications of these findings. The most important implications of the model estimates are that labour demand is negatively related to Wage Rates and positively related to Net Output.