FOREIGN LABOUR IN MALAYSIA SELECTED WORKS 92 The Demand Model For Foreign

Foreign labour in malaysia selected works 92 the

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FOREIGN LABOUR IN MALAYSIA : SELECTED WORKS 92 The Demand Model For Foreign Workers As we know that the industrial demand for labor is derived from the demand of manufacturing output. Therefore, the demand function of the manufacturing industry for foreign labourer can be derived from two different approaches. The first is the production function with cost constraint, and the second is cost function with production constraint. The former can be done if the inputs of manufacturing production functions are fully available, while the second can be done if inputs of production function are limited (Hamersmesh 1984). There are different types of production function - (eventhough they assume that labor is homogeneous or heterogeneous) - and they have long been developed by economics experts, for examples : Cobb-Douglas production function, production function with constant elasticity of substitution (CES) and translog function. Unfortunately, these three production functions have limitations when they are used to analyze the capital and labor roles through outputs of various industries. The Cobb-Douglas production function weakness is the aggregative, where by the total of all production functions at firms level cannot be formed as a function that is commonly accepted in an industry (Osman & Maisom 1990). The CES production function is not easily developed if we use more than two inputs in the process of production. The translog production function cannot analyze the data with a value that is equal or close to zero (Bairam 1991). The Cobb-Douglas production function has a limitation. However, it is still more suitable to achieve the objectives of this study. There are several reasons for it this. First, this production function can accept more than two inputs in the process of production where by this advantage cannot be found in CES and translog production functions. Second, it has a simple form and easier to understand as it is formed in log-linear (Hamermesh, 1984; Osman & Maisom1990). The common form of Cobb-Douglas production function is as the following (see Gujarati 1995; Zanias 1991) : Q = A K α L β , where A > 0; 0 < α and β < 1 (1) Where Q is output, K and L are capital and labor inputs, while α and β are parameters to show the extending of technology that intensively utilize capital and labor in the process of production.
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93 FOREIGN LABOUR IN MALAYSIA : SELECTED WORKS This production function is a commonly written and used by economic experts. It can be generalized to more than two inputs that are used in the process of production. For examples, the utilization of inputs combinations : capital and local workers, capital and foreign workers, local workers and foreign workers. There by Cobb-Douglas production function with capital, local and foreign workers inputs, could be written in equation form as the following (Rahmah & Lum 2000) : Q = A K α L n β L m δ (2) As like usual Q is output, A is the parameter that shows technological improvement; K , L n and L m are capitals, foreign and local workers in the process of production, respectively.
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