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Models of Labour Services and Estimates of Total Factor Productivity


  • Robert Dixon
  • David Shepherd


This paper examines the manner in which labour services are modelled in the aggregate production function, concentrating on the relationship between numbers employed and average hours worked. It argues that numbers employed and hours worked are not perfect substitutes and that conventional estimates of total factor productivity which, by using total hours worked as the measure of labour services, assume they are perfect substitutes, will be biased when there are marked changes in average hours worked. The relevance of the theoretical argument is illustrated using data for the United States and the United Kingdom.

Suggested Citation

  • Robert Dixon & David Shepherd, 2007. "Models of Labour Services and Estimates of Total Factor Productivity," Department of Economics - Working Papers Series 981, The University of Melbourne.
  • Handle: RePEc:mlb:wpaper:981

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    References listed on IDEAS

    1. Melumad, Nahum D. & Reichelstein, Stefan, 1989. "Value of communication in agencies," Journal of Economic Theory, Elsevier, vol. 47(2), pages 334-368, April.
    2. Suren Basov & Peter Bardsley, 2005. "A General Model of Coexisting Hidden Action and Hidden Information," Department of Economics - Working Papers Series 958, The University of Melbourne.
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    More about this item


    Labour Services; Production Function; Total Factor Productivity;

    JEL classification:

    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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