New Specifications for Employment and Hours Functions

where E and E* are current actual and desired levels of employment and Z1 is a vector of lagged values of factor inputs. The lagged values appear because of which link the present with the past. This literature is surveyed in Hazledine (1974). In the early work, Z1 contained only the lagged value of employment itself, but in their well-known 1969 paper Nadiri and Rosen introduced a specification incorporating adjustment - the idea being that, if there are costs involved in changing the levels of other factor inputs as well as employment, then firms will consider all such costs together when making their factor input decisions. This leads naturally to the inclusion of lagged values of other factors in Z1, as well as to specifying relations analogous to (1) to explain the current levels of the other factors. Rather neglected amid all this interest in adjustment costs has been the specification of E*-the level of employment towards which the adjusting is aimed. In Section I, some problems with the standard neoclassical approach to specifying E* are discussed. In Section II, I discuss the extension of the scope of the interrelated factor demand work to include the level and utilization of fixed capital, and defend the decision taken here to limit attention to the labour input. In Section III the standard assumption about the form of the underlying production function is questioned on the basis of the results of Hazledine and Watts (1977), and a new specification proposed that is consistent with those results. In Section IV, both old and new specifications are estimated with data on 14 UK manufacturing industries; in most industries the new specification performs better. Section V concludes and summarizes the paper

Business · Economics · Labour economics · Firm Innovation and Growth · Global trade and economics · Labor market dynamics and wage inequality

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