Advances and Applications in Statistics
Volume 35, Issue 1, Pages 57 - 73
(July 2013)
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TESTING THE NEOCLASSICAL THEORIES OF LABOR DEMAND: AN APPLICATION TO THE TIME SERIES OF THE UNITED STATES
Brian W. Sloboda
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Abstract: Econometric models are often developed by imposing a prioritheoretical constraints that may not often be tested in a direct way. The advent of cointegration by Granger [6] and Engle and Granger [5] allows for the testing of the existence of potential equilibrium relationships as implied from economic theory. This paper applies cointegration and vector error correction models (VECM) to examine if the neoclassical labor demand models are consistent with the time series data for the United States. The first part of this assessment will test for a neoclassical labor demand equilibrium using a basic OLS model to test if a cointegration relationship does exist. The basic OLS approach confirmed the existence of a cointegration and further assessment is pursued to determine the extent of this cointegration and examine the short-run and long-run causality relationships. The conclusion of this paper confirmed that there exists of an equilibrium neoclassical labor demand relationship in the United States. |
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