Short-Run Employment Behaviour of the Labour-Managed Firm : Evidence from Yugoslavia

In a recent survey, Estrin and Bartlett (1980) argue that one of the weaknesses of the existing empirical literature on the Yugoslav labour market is its failure to directly test the central predictions of theoretical models of labour-managed firms (LMF's). Rather, the focus has been on indirect issues such as income dispersion and labour mobility. This paper considers one of the direct theoretical predictions, namely how the enterprise adjusts its employment level in response to short-run variations in demand. Short-run employment functions are derived and then estimated at the industry and aggregate levels using Yugoslav quarterly data. The results are used first of all to examine competing LMF models, secondly to look for any effects of the institutional reforms that took place in 1972 and, finally, to make comparisions with a capitalist economy, the U.K.