An Empirical Note on Factor Price Elasticities and Substitution in Australian Higher Education

Abstract

This note uses a multiple-input, multiple-output translog cost function to calculate Allen-Uzawa and Morishima elasticities of substitution for thirty-six Australian universities over the period 1998 to 2006. The input prices are academic and non-academic labour and capital. The six outputs are undergraduate, postgraduate and PhD completions, national competitive and industry grants, and publications. The results suggest that the derived demand for academic labour in the Australian university sector is highly price inelastic while the demand for non-academic labour and capital is highly price elastic. This suggests that the cost drivers in the Australian university sector are presently price-related for academic inputs and technology-related for non-academic and capital inputs. Moreover, the opportunities for input substitution are not symmetric, with the sector generally finding it easier to switch to capital than academic and non-academic labour. Finally, while the Allen-Uzawa measures indicate that academic and non-academic labour is a substitute, the less-restrictive Morishima measures suggests neither complementarity or substitutability at the aggregate level.