STABILITY AND DYNAMIC PROPERTIES OF LABOUR DEMAND IN WEST‐GERMAN MANUFACTURING

Abstract

This paper studies the stability and dynamic properties of labor demand in West German manufacturing with output, an index of total factor productivity, and relative factor prices as independent variables. Several integration tests for seasonal time series are performed allowing for a mixture of unit roots at one period and seasonal lags. The model is estimated using the cointegration and error correction techniques. Parameter stability is tested by sequential Chow tests based on recursive residuals, which are also used to test for autocorrelation and heteroskedasticity. The dynamic behavior of the model is illustratesd by a dynamic simulation. Copyright 1989 by Blackwell Publishing Ltd