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The Demand for Labour and the Lucas Critique. Evidence from Norwegian Manufacturing

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Abstract

This paper uses neoclassical theory as a foundation for modelling labour demand in Norwegian manufacturing. Applying the Johansen (1988,1991) methodology, we obtain a single cointegrating vector between employment, production, relative factor prices, total factor productivity and the stock of real capital. Normalised on employment, the estimated long run elasticities are 1.37 (production), -0.32 (relative factor prices), -0.57 (total factor productivity) and -1.00 (the stock of real capital). Next, we develop a conditional labour demand model that exhibits parameter constancy. In addition to equilibrium correction effects, we find contemporaneous effects of production and relative factor prices. We cannot reject super exogeneity to be present in our labour demand equation. Hence, the evidence on labour demand in Norwegian manufacturing does not lend support to the Lucas critique.

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  • Pål Boug, 1999. "The Demand for Labour and the Lucas Critique. Evidence from Norwegian Manufacturing," Discussion Papers 256, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:256
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    Cited by:

    1. Avni Onder Hanedar & Elmas Yaldiz & Ozgul Bilici & Onur Akkaya, 2006. "Long Run Profit Maximization in the Turkish Manufacturing Sector," Discussion Paper Series 06/02, Dokuz Eylül University, Faculty of Business, Department of Economics, revised 30 Nov 2006.

    More about this item

    Keywords

    Labour demand; cointegration; conditioning; equilibrium correction model; parameter constancy; exogeneity; Lucas critique.;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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