There have been several microeconomic arguments that the labour demand curve need not be downward sloping (Card/Krueger 1994; Manning 1995), but our concern here is a macroeconomic one.
There is a large literature trying to empirically identify labour demand curves. However, national accounting identities will give rise to spurious negative slopes. Anyadike-Danes/Godley (1989) demonstrated that estimated labour demand functions will generate negative slopes based on data that were simulated assuming fixed coefficient technology and mark-up pricing (see also Felipe/McCombie 2009).
Our theoretical concept of hysteresis is defined as (medium-term) endogeneity of the NAIRU. Empirical tests of the unemployment hysteresis usually test for a unit root in unemployment, which is a stronger condition than implied by our argument.
Values of MW have been divided by 100.
We have chained two separate time series of gross replacement rates. The first series ranging from 1961 to 2005 is based on Average Production Worker wages, whereas the second time series (2005 to 2011) is based on Average Worker wages. Further details can be found at OECD Benefits and Wages: Statistics (available at http://www.oecd.org/els/benefitsandwagesstatistics.htm).
Gross fixed capital formation captures the demand side of aggregate investment. The AMECO dataset does offer series for residential and non-residential investment. Future research could include these two types of investment separately.
Values of INFL, ACCU and HOUSEBUB have been multiplied by 100.
Estimating an autoregressive distributed lag model gave clear support for the difference specification.
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