Estimation of dynamic labor demand schedules under rational expectations

In: Research Department staff report

In: Federal Reserve Bank of Minneapolis 27

In: Staff report / Federal Reserve Bank of Minneapolis, Research Department 27

In: Federal Reserve Bank of Minneapolis

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"--Federal Reserve Bank of Minneapolis web site