Labour Demand Research: Towards a Better Match between Better Theory and Better Data

32 Pages Posted: 26 Apr 2014

See all articles by John T. Addison

John T. Addison

University of South Carolina - Moore School of Business - Department of Economics; IZA Institute of Labor Economics

Pedro Portugal

Bank of Portugal - Research Department; New University of Lisbon; IZA Institute of Labor Economics

José Varejão

Universidade do Porto - Faculdade de Economia (FEP)

Abstract

At first blush, most advances in labour demand were achieved by the late 1980s. Since then progress might appear to have stalled. We argue to the contrary that significant progress has been made in understanding labour market frictions and imperfections, and in modelling search behaviour and heterogeneous preferences. Perhaps most notable have been the improvements in data, in the form of longitudinal matched employer-employee data, and in techniques and algorithms (e.g. for solving heterogeneous parameter models). In short, the Cinderella status of the field is frankly overdrawn. Nevertheless, a chief lacuna remains the need for a better match between theory and data. This paper provides a critical albeit eclectic assessment of these developments, along the dimensions of the static and dynamic theory of labour demand, wage formation, and estimation, noting advances and limitations. As is conventional, somewhat greater emphasis is placed on the latter.

Keywords: labour demand, input heterogeneity, labour adjustment costs, wage and employment determination, product and labour market imperfections, multiple fixed effects, exogenous wages, establishment-level functions

JEL Classification: J23, J3, J4, J5, D4, F66

Suggested Citation

Addison, John T. and Portugal, Pedro and Varejão, José, Labour Demand Research: Towards a Better Match between Better Theory and Better Data. IZA Discussion Paper No. 8125. Available at SSRN: https://ssrn.com/abstract=2429644

John T. Addison (Contact Author)

University of South Carolina - Moore School of Business - Department of Economics ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States
803-777-7400 (Phone)
803-777-6876 (Fax)

HOME PAGE: http://mooreschool.sc.edu/moore/economics/profiles/addison.htm

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Pedro Portugal

Bank of Portugal - Research Department ( email )

Av. Almirante Reis 71, 6th
Lisbon 1150-012
Portugal
+351 21 313 0000 (Phone)
+351 21 814 3841 (Fax)

New University of Lisbon

Lisbon, 1099-085
Portugal

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

José Varejão

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Roberto Frias
s/n
Porto, 4200-464
Portugal

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