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Modelling Aggregate Demand for Labour: A Critique of Lewis and MacDonald

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  • STEVE DOWRICK
  • GRAEME WELLS

Abstract

In a recent contribution to this journal, Lewis and MacDonald (2002) argue that Australian literature on aggregate demand for labour is permeated with misunderstandings and, as a result, existing empirical work has been misinterpreted. The objective of the present note is to argue that the interpretation of existing empirical studies, to the extent that they are based on a CES production technology, is broadly correct. We demonstrate that Lewis and McDonald have no basis for estimating anything more than the partial elasticity of labour demand, holding output constant, because their single-equation estimation does not identify the elasticity of demand for output. Copyright © 2004 Economic Society of Australia..

Suggested Citation

  • Steve Dowrick & Graeme Wells, 2004. "Modelling Aggregate Demand for Labour: A Critique of Lewis and MacDonald," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 436-440, December.
  • Handle: RePEc:bla:ecorec:v:80:y:2004:i:251:p:436-440
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    Cited by:

    1. Robert Dixon & John Freebairn & G C Lim, 2004. "An Employment Equation For Australia: 1966-2001," Department of Economics - Working Papers Series 892, The University of Melbourne.
    2. Marika Karanassou & Hector Sala, 2010. "Labour Market Dynamics in Australia: What Drives Unemployment?," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 185-209, June.
    3. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975, April.

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