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Estimation of Dynamic Labor Demand Schedules Under Rational Expectations

Staff Report 27 | Published April 1, 1978

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Estimation of Dynamic Labor Demand Schedules Under Rational Expectations

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) https://doi.org/10.1086/260726.