IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

How Elastic is The Demand for Labor?

  • Kim B. Clark
  • Richard B. Freeman

This paper investigates the magnitude of the elasticity of demand for labor in time series data using more general and complete models of demand than have been previously employed. It argues that previous analyses have imposed two invalid constraints in calculations, which bias downward estimated elasticities. The first invalid constraint is the assumption that real capital prices have an equal opposite effect to real wages in the demand equation. We show on measurement error grounds that this constraint should not be imposed in econometric work even when long run homogeneity of prices correctly characterizes the market. The constraint is rejected in the data. The second invalid constraint is that all explanatory variables have the same lag distribution. We argue that this constraint is invalid when decisions are made under uncertainty and find that it is also rejected by the data. The principal positive empirical finding is that with the constraints relaxed, the elasticity, of demand with respect to real wages is much larger than the estimates in the literature, indicating much greater price responsiveness on the demand side of the labor market than has previously been thought.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0309.

in new window

Date of creation: Jan 1979
Date of revision:
Publication status: published as Clark, Kim B. and Freeman, Richard B. "How Elastic is the Demand for Labor?" The Review of Economics and Statistics, Vol. LXII, No. 4, (November 1980) , pp. 509-520.
Handle: RePEc:nbr:nberwo:0309
Note: LS
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Binswanger, Hans P., 1973. "A Cost Function Approach To The Measurement Of Factor Demand Elasticities And Elasticities Of Substitution," Staff Papers 13478, University of Minnesota, Department of Applied Economics.
  2. M. Ishaq Nadiri & Sherwin Rosen, 1974. "A Disequilibrium Model of Demand for Factors of Production," NBER Books, National Bureau of Economic Research, Inc, number nadi74-1, July.
  3. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
  4. Marc Nerlove, 1967. "Distributed Lags and Unobserved Components in Economic Time Series," Cowles Foundation Discussion Papers 221, Cowles Foundation for Research in Economics, Yale University.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:0309. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.