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Labour Demand Research: Towards a Better Match between Better Theory and Better Data

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Author Info

  • Addison, John T.

    ()
    (University of South Carolina)

  • Portugal, Pedro

    ()
    (Banco de Portugal)

  • Varejão, José

    ()
    (University of Porto)

Abstract

At first blush, most advances in labour demand were achieved by the late 1980s. Since then progress might appear to have stalled. We argue to the contrary that significant progress has been made in understanding labour market frictions and imperfections, and in modelling search behaviour and heterogeneous preferences. Perhaps most notable have been the improvements in data, in the form of longitudinal matched employer-employee data, and in techniques and algorithms (e.g. for solving heterogeneous parameter models). In short, the Cinderella status of the field is frankly overdrawn. Nevertheless, a chief lacuna remains the need for a better match between theory and data. This paper provides a critical albeit eclectic assessment of these developments, along the dimensions of the static and dynamic theory of labour demand, wage formation, and estimation, noting advances and limitations. As is conventional, somewhat greater emphasis is placed on the latter.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 8125.

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Length: 32 pages
Date of creation: Apr 2014
Date of revision:
Publication status: forthcoming in: Labour Economics
Handle: RePEc:iza:izadps:dp8125

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Keywords: labour demand; input heterogeneity; labour adjustment costs; wage and employment determination; product and labour market imperfections; multiple fixed effects; exogenous wages; establishment-level functions;

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