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Long-run homogeneity of labour demand. Panel evidence from OECD countries


  • Franz Hahn


This study makes an attempt to examine the long-run relationship between the key labour market parameters of employment, aggregate output, real product wages and labour-augmenting technical progress for a sample of 21 OECD countries covering the period from 1970 to 2000. A new panel error correction technique is applied, which allows one to constrain the long-run coefficients to be identical across the countries while letting the short-run coefficients which govern the dynamics and the error variances differ freely, respectively. Thus, this estimation approach assumes that institutional and cultural differences, albeit causing short-term deviations of labour demand behaviour across countries, leave the long-run structure of the labour markets unaffected. That is to say, the long-run equilibrium relationship between the key labour market variables is taken to be similar across the OECD economies. The empirical analysis shows that the long-run relationship between the key labour market parameters is equal across the OECD countries. However, adjustment speed of actual employment to the equilibrium is much higher in countries with flexible labour markets, such as the USA and UK, than in countries with rigid labour markets, such as Germany and Austria.

Suggested Citation

  • Franz Hahn, 2004. "Long-run homogeneity of labour demand. Panel evidence from OECD countries," Applied Economics, Taylor & Francis Journals, vol. 36(11), pages 1199-1203.
  • Handle: RePEc:taf:applec:v:36:y:2004:i:11:p:1199-1203
    DOI: 10.1080/0003684042000247370

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    References listed on IDEAS

    1. Pesaran, H. & Smith, R. & Im, K.S., 1995. "Dynamic Linear Models for Heterogeneous Panels," Cambridge Working Papers in Economics 9503, Faculty of Economics, University of Cambridge.
    2. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    3. Pesaran, M Hashem & Pierse, Richard G & Kumar, Mohan S, 1989. "Econometric Analysis of Aggregation in the Context of Linear Prediction Models," Econometrica, Econometric Society, vol. 57(4), pages 861-888, July.
    4. Lee, Kevin C & Pesaran, M Hashem & Pierse, Richard G, 1990. "Testing for Aggregation Bias in Linear Models," Economic Journal, Royal Economic Society, vol. 100(400), pages 137-150, Supplemen.
    5. Yongcheol Shin & Ron P Smith & Mohammad Hashem Pesaran, 1998. "Pooled Mean Group Estimation of Dynamic Heterogeneous Panels," ESE Discussion Papers 16, Edinburgh School of Economics, University of Edinburgh.
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    Cited by:

    1. Branimir Jovanovic, 2013. "Aggregation Bias in Trade Elasticities: The Case of Macedonia," FIW Working Paper series 106, FIW.
    2. Pierluigi, Beatrice & Roma, Moreno, 2008. "Labour cost and employment across euro area countries and sectors," Working Paper Series 912, European Central Bank.

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