Factor demand and factor substitution in selected sectors of the irish food-industry

Abstract

In this paper the degree of substitution between capital services, labour, material and fuel was estimated for the meat and milk processing sectors of the Irish food industry. The responsiveness of these inputs to price changes was also estimated. Capital services and labour were strong substitutes in production in all sectors. The price elasticity of demand for labour services was ? 0.74 for the bacon sector, ? 1.2 for the other meat processing sector and ? 0.63 for the dairy processing sector. Predictions of the demand for labour based on fixed coefficient type relationship between labour and output will be misleading when the capital-labour-price ratio also changes.