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The Long-Run Demand for Labor: Estimates from Census Establishment Data

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  • Dunne, T.
  • Roberts, M.

Abstract

This paper estimates long-run demand functions for production workers, production worker hours, and nonproduction workers using micro data from U.S. establishment surveys. The paper focuses on estimation of the wage and output elasticities of labor demand using data on over 41,000 U.S. manufacturing plants in 1975 and more than 30,000 plants in 1981. Particular attention is focused on the problems of unobserved producer heterogeneity and measurement errors in output that can affect labor demand estimates based on establishment survey data. The empirical results reveal that OLS estimates of both the own-price elasticity and the output elasticity of labor demand are biased downward as a result of unobserved heterogeneity. Differencing the data as a solution to this problem greatly exaggerates measurement error in the output coefficients. The use of capital stocks as instrumental variables to correct for measurement error in output significantly alters output elasticities in the expected direction but has no systematic effect on own-price elasticities. All of these patterns are found in estimates that pool establishment data across industries and in industry-specific regressions for the vast majority of industries. Estimates of the output elasticity of labor demand indicate that there are slight increasing returns for production workers and production hours, with a pooled data estimate of .92. The estimate for nonproduction workers in .98. The variation in the output elasticities across industries is fairly small. Estimates of the own-price elasticity vary more substantially with the year, type of differencing used, and industry. They average -.50 for production hours, -.41 for production workers, and -.44 for nonproduction workers. The price elasticities vary widely across manufacturing industries: the interquartile range for the industry estimates is approximately .40.

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Bibliographic Info

Paper provided by Pennsylvania State - Department of Economics in its series Papers with number 10-93-8.

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Length: 27 pages
Date of creation: 1993
Date of revision:
Handle: RePEc:fth:pensta:10-93-8

Contact details of provider:
Postal: PENNSYLVANIA STATE UNIVERSITY, DEPARTMENT OF ECONOMICS, UNIVERSITY PARK PENNSYLVANIA 16802 U.S.A.
Phone: (814)865-1456
Fax: (814)863-4775
Web page: http://econ.la.psu.edu/
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Keywords: labour market;

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References

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  1. Steve J. Davis & John Haltiwanger, 1991. "Gross job creation, gross job destruction and employment reallocation," Working Paper Series, Macroeconomic Issues 91-5, Federal Reserve Bank of Chicago.
  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  3. Blanchflower, David G & Millward, Neil & Oswald, Andrew J, 1991. "Unionism and Employment Behaviour," Economic Journal, Royal Economic Society, vol. 101(407), pages 815-34, July.
  4. Steven J. Davis & John Haltiwanger, 1990. "Gross Job Creation and Destruction: Microeconomic Evidence and Macroeconomic Implications," NBER Chapters, in: NBER Macroeconomics Annual 1990, Volume 5, pages 123-186 National Bureau of Economic Research, Inc.
  5. Daniel S. Hamermesh, 1983. "New Measures of Labor Cost: Implications for Demand Elasticities and Nominal Wage Growth," NBER Chapters, in: The Measurement of Labor Cost, pages 287-308 National Bureau of Economic Research, Inc.
  6. Edward Kokkelenberg & Sang Nguyen, 1989. "Modeling technical progress and total factor productivity: A plant level example," Journal of Productivity Analysis, Springer, vol. 1(1), pages 21-42, March.
  7. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc.
  8. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, December.
  9. Zvi Griliches & Jacques Mairesse, 1984. "Productivity and R&D at the Firm Level," NBER Chapters, in: R & D, Patents, and Productivity, pages 339-374 National Bureau of Economic Research, Inc.
  10. Griliches, Zvi, 1986. "Economic data issues," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 25, pages 1465-1514 Elsevier.
  11. Zvi Griliches & Jerry A. Hausman, 1984. "Errors in Variables in Panel Data," NBER Technical Working Papers 0037, National Bureau of Economic Research, Inc.
  12. Dunne, T. & Roberts, M.J. & Samuelson L., 1988. "Plant Turnover And Gross Employment Flows In The U.S. Manufacturing Sector," Papers 9-87-7, Pennsylvania State - Department of Economics.
  13. Sosin, Kim H & Fairchild, Loretta G, 1984. "Nonhomotheticity and Technological Bias in Production," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 44-50, February.
  14. Dunne, Timothy & Roberts, Mark J, 1991. "The Duration of Employment Opportunities in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 216-27, May.
  15. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  16. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
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Cited by:
  1. Sang V. Nguyen & Michael Ollinger, 2009. "Mergers and acquisitions, employment, wages, and plant closures in the U.S. meat product industries," Agribusiness, John Wiley & Sons, Ltd., vol. 25(1), pages 70-89.
  2. Nathan Musick, 1998. "Heroic Plants: Persistently Rapid Job Creators in the Longitudinal Research Database - Their Distinguishing Characteristics and Contribution to Employment Growth," Industrial Organization 9811001, EconWPA.
  3. McGuckin, Robert H. & Nguyen, Sang V., 2001. "The impact of ownership changes: a view from labor markets," International Journal of Industrial Organization, Elsevier, vol. 19(5), pages 739-762, April.
  4. Douglas W Dwyer, 1995. "Whittling Away At Productivity Dispersion," Working Papers 95-5, Center for Economic Studies, U.S. Census Bureau.
  5. Fajnzylber, Pablo & Maloney, William F., 2005. "Labor demand and trade reform in Latin America," Journal of International Economics, Elsevier, vol. 66(2), pages 423-446, July.
  6. Mine Zeynep Senses, 2006. "The Effects of Outsourcing on the Elasticity of Labor Demand," Working Papers 06-07, Center for Economic Studies, U.S. Census Bureau.
  7. Fajnzylber, Pablo & Maloney, William F., 2001. "How comparable are labor demand elasticities across countries?," Policy Research Working Paper Series 2658, The World Bank.
  8. Sang V Nguyen & Robert H Mcguckin & Arnold P Reznek, 1995. "The Impact Of Ownership Change On Employment, Wages, And Labor Productivity In U.S. Manufacturing 1977-87," Working Papers 95-8, Center for Economic Studies, U.S. Census Bureau.

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