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The Demand for Labour and the Lucas Critique. Evidence from Norwegian Manufacturing

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    Abstract

    This paper uses neoclassical theory as a foundation for modelling labour demand in Norwegian manufacturing. Applying the Johansen (1988,1991) methodology, we obtain a single cointegrating vector between employment, production, relative factor prices, total factor productivity and the stock of real capital. Normalised on employment, the estimated long run elasticities are 1.37 (production), 0.32 (relative factor prices), 0.57 (total factor productivity) and 1.00 (the stock of real capital). Next, we develop a conditional labour demand model that exhibits parameter constancy. In addition to equilibrium correction effects, we find contemporaneous effects of production and relative factor prices. We cannot reject super exogeneity to be present in our labour demand equation. Hence, the evidence on labour demand in Norwegian manufacturing does not lend support to the Lucas critique.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 256.

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    Date of creation: Jun 1999
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    Handle: RePEc:ssb:dispap:256

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    Keywords: Labour demand; cointegration; conditioning; equilibrium correction model; parameter constancy; exogeneity; Lucas critique.;

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    1. Favero, C. & Hendry, D., 1990. "Testing The Lucas Critique: A Review," Economics Series Working Papers 99101, University of Oxford, Department of Economics.
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    Cited by:
    1. Avni Onder Hanedar & Elmas Yaldiz & Ozgul Bilici & Onur Akkaya, 2006. "Long Run Profit Maximization in the Turkish Manufacturing Sector," Discussion Paper Series 06/02, Dokuz Eylül University, Faculty of Business, Department of Economics, revised 30 Nov 2006.

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