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Modelling Aggregate Demand for Labour: A Critique of Lewis and MacDonald

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  • STEVE DOWRICK
  • GRAEME WELLS

Abstract

In a recent contribution to this journal, Lewis and MacDonald (2002) argue that Australian literature on aggregate demand for labour is permeated with misunderstandings and, as a result, existing empirical work has been misinterpreted. The objective of the present note is to argue that the interpretation of existing empirical studies, to the extent that they are based on a CES production technology, is broadly correct. We demonstrate that Lewis and McDonald have no basis for estimating anything more than the partial elasticity of labour demand, holding output constant, because their single‐equation estimation does not identify the elasticity of demand for output.

Suggested Citation

  • Steve Dowrick & Graeme Wells, 2004. "Modelling Aggregate Demand for Labour: A Critique of Lewis and MacDonald," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 436-440, December.
    • Handle: RePEc:bla:ecorec:v:80:y:2004:i:251:p:436-440
    DOI: 10.1111/j.1475-4932.2004.00200.x
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    References listed on IDEAS

    as
    1. Philip E. T. Lewis & Garry MacDonald, 2002. "The Elasticity of Demand for Labour in Australia," The Economic Record, The Economic Society of Australia, vol. 78(240), pages 18-30, March.
    2. John Quiggin, 2001. "The Australian Productivity Miracle: A Sceptical View," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 8(4), pages 333-348.
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    Cited by:

    1. Marika Karanassou & Hector Sala, 2010. "Labour Market Dynamics in Australia: What Drives Unemployment?," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 185-209, June.
    2. Robert Dixon & John Freebairn & G C Lim, 2004. "An Employment Equation For Australia: 1966-2001," Department of Economics - Working Papers Series 892, The University of Melbourne.
    3. Blacklow, Paul, 2009. "Assessing the Impact of Worker Compensation Premiums on Employment in Tasmania," Working Papers 10449, University of Tasmania, Tasmanian School of Business and Economics, revised 29 Nov 2010.
    4. Robert Dixon & John Freebairn & G.C. Lim, 2005. "An Employment Equation for Australia," The Economic Record, The Economic Society of Australia, vol. 81(254), pages 204-214, September.
    5. Lei Lei Song & John Freebairn, 2005. "Policies to Reduce Unemployment: Simulations with Treasury Macroeconomic Model," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 351-366, December.
    6. Philip E.T. Lewis & Garry Macdonald, 2004. "Modelling Aggregate Demand for Labour: A Reply to Dowrick and Wells," The Economic Record, The Economic Society of Australia, vol. 80(251), pages 441-444, December.
    7. Jesus Felipe & John S.L. McCombie, 2013. "The Aggregate Production Function and the Measurement of Technical Change," Books, Edward Elgar Publishing, number 1975.

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