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

Addison, J.T.; Portugal, P.; Varejão, J.

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P. Portugal

J. Varejão


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. forsolving 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.

Journal Article Type Article
Publication Date Oct 1, 2014
Deposit Date May 27, 2014
Publicly Available Date Jul 17, 2014
Journal Labour Economics
Print ISSN 0927-5371
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 30
Pages 4-11
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.
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Accepted Journal Article (337 Kb)

Copyright Statement
NOTICE: this is the author’s version of a work that was accepted for publication in Labour Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Labour Economics, 30, October 2014, 10.1016/j.labeco.2014.06.002.

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