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Endogenous Output in an Aggregate Model of the Labor Market

  • R)chard E. Quandt
  • Harvey S. Rosen

A common feature to most aggregative studies of the labor market is a marginal productivity expression in which the quantity of labor appears on the left hand side of the equation, and the right hand side includes the real wage and output. A number of researchers have cautioned that if the output variable is treated as exogenous, serious econometric difficulties may result. However, the assumption that output is exogenous has not been tested. In this paper, we estimate an equilibrium model of the labor market, and use it to test the assumption of output exogeneity. We find that the assumption that output is exogenous cannot be rejected by the data.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0074.

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Date of creation: Jan 1989
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Publication status: published as Quandt, Richard E. and Harvey S. Rosen. "Endogenous Output In An Aggregate Model Of The Labor Market," Review of Economics and Statistics, 1989, v71(3), 394-400.
Handle: RePEc:nbr:nberte:0074
Note: LS
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  1. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State 26, Chicago - Center for Study of Economy and State.
  2. Richard E. Quandt & Harvey S. Rosen, 1985. "Unemployment, Disequilibrium, and the Short Run Phillips Curve: An Econometric Approach," NBER Working Papers 1648, National Bureau of Economic Research, Inc.
  3. Symons, J & Layard, R, 1984. "Neoclassical Demand for Labour Functions for Six Major Economies," Economic Journal, Royal Economic Society, vol. 94(376), pages 788-99, December.
  4. Matthew D. Shapiro, 1986. "Capital Utilization and Capital Accumulation: Theory and Evidence," NBER Working Papers 1900, National Bureau of Economic Research, Inc.
  5. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-47, February.
  6. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Real Wages, Employment, and Inflation," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 721-54, Sept./Oct.
  7. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210 National Bureau of Economic Research, Inc.
  8. Andrews, Martyn & Nickell, Stephen J, 1986. "A Disaggregated Disequilibrium Model of the Labour Market," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 386-402, November.
  9. Altonji, Joseph G, 1982. "The Intertemporal Substitution Model of Labour Market Fluctuations: An Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 49(5), pages 783-824, Special I.
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