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Estimation of dynamic labor demand schedules under rational expectations

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  • Thomas J. Sargent

Abstract

A dynamic linear demand schedule for labor is estimated and tested. The hypothesis of rational expectations and assumptions about the orders of the Markov processes governing technology impose over-identifying restrictions on a vector autoregression for straight-time employment, overtime employment, and the real wage. The model is estimated by the full information maximum likelihood method. The model is used as a vehicle for re-examining some of the paradoxical cyclical behavior of real wages described in the famous Dunlop-Tarshis-Keynes exchange.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 27.

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Date of creation: 1978
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Handle: RePEc:fip:fedmsr:27

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  1. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  2. Neftci, Salih N, 1978. "A Time-Series Analysis of the Real Wages-Employment Relationship," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 281-91, April.
  3. Phelps, Edmund S, 1969. "A Note on Short-Run Employment and Real Wage Rate under Competitive Commodity Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(2), pages 220-32, June.
  4. Sargent, Thomas J & Wallace, Neil, 1974. "The Elasticity of Substitution and Cyclical Behavior of Productivity, Wages, and Labor's Share," American Economic Review, American Economic Association, vol. 64(2), pages 257-63, May.
  5. Paul R. Milgrom, 1978. "Rational Expectations," Discussion Papers 406, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  7. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  8. Barro, Robert J & Grossman, Herschel I, 1971. "A General Disequilibrium Model of Income and Employment," American Economic Review, American Economic Association, vol. 61(1), pages 82-93, March.
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