Staff Report 27

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Estimation of Dynamic Labor Demand Schedules Under Rational Expectations

Thomas J. Sargent - Consultant

Published April 1, 1978

Abstract
A dynamic linear demand schedule for labor is estimated and tested. The hypothesis of rational expectations and assumptions about the orders of the Markov processes governing technology impose over-identifying restrictions on a vector autoregression for straight-time employment, overtime employment, and the real wage. The model is estimated by the full information maximum likelihood method. The model is used as a vehicle for re-examining some of the paradoxical cyclical behavior of real wages described in the famous Dunlop-Tarshis-Keynes exchange.


Published In: Labor economics (Vol. 1, 1995, pp. 209-244)
Published In: Dynamic labor demand and adjustment costs (1992, pp. 106-141)
Published In: Journal of Political Economy (Vol. 86, No. 6, December 1978, pp. 1009-1044)

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