Employment Determination In Macroeconomic Models - Some Empirical-Evidence

    Authors

    R. A. Hofler;L. C. Spector

    Comments

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    Abbreviated Journal Title

    J. Macroecon.

    Keywords

    Money Supply Rule; Rational Expectations; United-States; Labor-Market; Disequilibrium; Regression; Unemployment; Normality; Errors; Tests; Economics

    Abstract

    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 Title

    Journal of Macroeconomics

    Volume

    15

    Issue/Number

    1

    Publication Date

    1-1-1993

    Document Type

    Article

    Language

    English

    First Page

    123

    Last Page

    138

    WOS Identifier

    WOS:A1993KG64300007

    ISSN

    0164-0704

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