This paper investigates the endogeneity of output in the context of the standard dynamic labour-demand model. Using a panel of Dutch firms we find that the assumption of endogeneity of output cannot be rejected, so that an adjusted procedure has to be followed in which information on the output expectations of entrepreneurs is used. The estimated effect of the endogenous, current output variable on employment appears to be significantly larger than the effect of the exogenous, expected output variable. The adjustment parameter of employment is however, remarkably robust against distinct specifications for output. Coauthors are Wolter Hassink, Peter Nijkamp, and Eric Pels.
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