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Real wages, investment and employment: New evidence from West German sectoral data

  • Felix FitzRoy
  • Michael Funke

Non-Separable capital adjustment costs imply that investment directly affects the demand for labour and therefore justify not only the lagged dependent variable but also the presence of investment expenditures or Tobin's valuation ratio Q in labour demand estimation. On this basis we estimate a very parsimonious specification of demand for blue-collar workers in a panel of 32 west German industries, conditional on value added and common macroeffects. We find much larger short-run real wage employment elasticities than previous work, and robustly significant positive effects of investment or Tobin's Q on labour demand.

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Article provided by Springer in its journal Weltwirtschaftliches Archiv.

Volume (Year): 130 (1994)
Issue (Month): 2 (June)
Pages: 258-272

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Handle: RePEc:spr:weltar:v:130:y:1994:i:2:p:258-272
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  1. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  2. Konig, Heinz & Pohlmeier, Winfried, 1988. "Employment, Labour Utilization and Procyclical Labour Productivity," Kyklos, Wiley Blackwell, vol. 41(4), pages 551-72.
  3. Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
  4. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  5. Flaig, Gebhard & Steiner, Viktor, 1989. "Stability and Dynamic Properties of Labour Demand in West German Manufacturing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 51(4), pages 395-412, November.
  6. Hayashi, Fumio & Sims, Christopher A, 1983. "Nearly Efficient Estimation of Time Series Models with Predetermined, but Not Exogenous, Instruments," Econometrica, Econometric Society, vol. 51(3), pages 783-98, May.
  7. Sargan, J D, 1980. "Some Tests of Dynamic Specification for a Single Equation," Econometrica, Econometric Society, vol. 48(4), pages 879-97, May.
  8. Zimmermann, Klaus F, 1991. "The Employment Consequences of Technological Advance, Demand and Labor Costs in 16 German Industries," Empirical Economics, Springer, vol. 16(2), pages 253-66.
  9. FitzRoy, Felix R & Hart, Robert A, 1985. "Hours, Layoffs and Unemployment Insurance Funding: Theory and Practice in an International Perspective," Economic Journal, Royal Economic Society, vol. 95(379), pages 700-713, September.
  10. Dinenis, Elias & Funke, Michael, 1994. "Factor Prices, Employment and Investment in U.K. and West German Manufacturing," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(4), pages 412-24, December.
  11. Treadway, Arthur B., 1970. "Adjustment costs and variable inputs in the theory of the competitive firm," Journal of Economic Theory, Elsevier, vol. 2(4), pages 329-347, December.
  12. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Examining Alternative Macroeconomic Theories," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 207-270.
  13. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
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