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Endogenous Output in an Aggregate Model of the Labor Market

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  • Richard E. Quandt
  • Harvey S. Rosen

Abstract

A common feature to most aggregative studies of the labor market is a marginal productivity expression in which the quantity of labor appears on the left hand side of the equation, and the right hand side includes the real wage and output. A number of researchers have cautioned that if the output variable is treated as exogenous, serious econometric difficulties may result. However, the assumption that output is exogenous has not been tested. In this paper, we estimate an equilibrium model of the labor market, and use it to test the assumption of output exogeneity. We find that the assumption that output is exogenous cannot be rejected by the data.

Suggested Citation

  • Richard E. Quandt & Harvey S. Rosen, 1989. "Endogenous Output in an Aggregate Model of the Labor Market," NBER Technical Working Papers 0074, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0074
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    8. Paul M. Romer, 1987. "Crazy Explanations for the Productivity Slowdown," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 163-210, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Bonanno, Alessandro & Lopez, Rigoberto, 2008. "Wal-Mart’s Monopsony Power in Local Labor Markets," Research Reports 149210, University of Connecticut, Food Marketing Policy Center.
    2. Swati Basu & Saul Estrin & Jan Svejnar, 2005. "Employment Determination in Enterprises under Communism and in Transition: Evidence from Central Europe," ILR Review, Cornell University, ILR School, vol. 58(3), pages 353-369, April.
    3. Bonanno, Alessandro & Lopez, Rigoberto A., 2009. "Is Wal-Mart a Monopsony? Evidence from Local Labor Markets," 2009 Conference, August 16-22, 2009, Beijing, China 51289, International Association of Agricultural Economists.
    4. Stuart Glosser & Lonnie Golden, 2005. "Is labour becoming more or less flexible? Changing dynamic behaviour and asymmetries of labour input in US manufacturing," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 29(4), pages 535-557, July.
    5. Holt, Matthew T., 1991. "A Multi-Market Bounded Prices Model Under Rational Expectations: The Case of Corn and Soybeans," Staff Papers 200537, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    6. Gorter, Cees & Hassink, Wolter & Nijkamp, Peter & Pels, Eric, 1997. "On the Endogeneity of Output in Dynamic Labour-Demand Models," Empirical Economics, Springer, vol. 22(3), pages 393-408.
    7. Swati Basu & Saul Estrin & Jan Svejnar, 2000. "Employment and Wages in Enterprises Under Communism and in Transition: Evidence from Central Europe and Russia," William Davidson Institute Working Papers Series 114, William Davidson Institute at the University of Michigan.
    8. Gopal Krishna Roy & Amaresh Dubey & Suresh Ramaiah, 2020. "Labour Market Flexibility and Changes in Employment: Spatial and Temporal Evidence from Indian Manufacturing," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 63(1), pages 81-98, March.
    9. Plassard, Romain & Renault, Matthieu, 2023. "General equilibrium models with rationing: The making of a ‘European specialty’," European Economic Review, Elsevier, vol. 159(C).
    10. Guy Debelle & James Vickery, 1998. "The Macroeconomics of Australian Unemployment," RBA Annual Conference Volume (Discontinued), in: Guy Debelle & Jeff Borland (ed.),Unemployment and the Australian Labour Market, Reserve Bank of Australia.
    11. Slaughter, Matthew J., 2001. "International trade and labor-demand elasticities," Journal of International Economics, Elsevier, vol. 54(1), pages 27-56, June.
    12. Bonanno, Alessandro & Lopez, Rigoberto A., 2012. "Wal-Mart's monopsony power in metro and non-metro labor markets," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 569-579.

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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