Employment Determination In Macroeconomic Models - Some Empirical-Evidence
Title - Alternative
Money Supply Rule; Rational Expectations; United-States; Labor-Market; Disequilibrium; Regression; Unemployment; Normality; Errors; Tests; Economics
The specification of how employment is determined has important implications for short-run macroeconomic policy prescriptions. Heretofore, there have been two main methods for testing this specification: comparing an equilibrium model to a disequilibrium model and using a switching regression model. This paper introduces a new method which is based on the distribution of the error term and the sign and significance of the real wage coefficient in a reduced form equation for employment. It is found that for the years 1948-1984 inclusive, the United States labor market has been operating under a fixed wage regime in which employment is being determined by the short-side of the market. Furthermore, the tests also indicate that the real wage is as likely to be below the equilibrium real wage as it is to be above it. As such, one cannot even make the case that, even though employment is determined by the short-side of the market, it ''acts as if'' it was demand determined.
Journal of Macroeconomics
Hofler, R. A. and Spector, L. C., "Employment Determination In Macroeconomic Models - Some Empirical-Evidence" (1993). Faculty Bibliography. 1698.