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Are estimates of labour demand functions mere statistical artefacts?

Author

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  • Jesus Felipe
  • J. S. L. McCombie

Abstract

This paper considers the estimation of putative neoclassical aggregate labour demand functions using constant price value data. Regression results normally find that employment is negatively related to the real wage and that the constant-output elasticity of employment with respect to the real wage is about -0.3. This is taken as evidence that unemployment is the result of the real wage being too high, ceteris paribus. This paper shows that these estimates are purely the result of an underlying identity and cannot be interpreted as implying any causal relationship and, as such, they have no policy implications.

Suggested Citation

  • Jesus Felipe & J. S. L. McCombie, 2009. "Are estimates of labour demand functions mere statistical artefacts?," International Review of Applied Economics, Taylor & Francis Journals, vol. 23(2), pages 147-168.
  • Handle: RePEc:taf:irapec:v:23:y:2009:i:2:p:147-168
    DOI: 10.1080/02692170802700492
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    References listed on IDEAS

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    1. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173.
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    Cited by:

    1. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.
    2. Engelbert Stockhammer & Alexander Guschanski & Karsten Köhler, 2014. "Unemployment, capital accumulation and labour market institutions in the Great Recession," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 11(2), pages 182-194, September.

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