Summary
The well known Lucas-Rapping (1969, 1970) U.S. Labour market model has been estimated with a simple disequilibrium estimation method. Neither the wage rate nor the employment level are found to adjust to clear the labour market within the unit time period. The elasticity of labour supply in the short run is found to be high which is consistent with the recent theories of real business cycle. Adjustment in employment towards equilibrium is faster than the adjustment in the wages. The rate of unemployment is satisfactorily explained by the excess supply rate without the need for the lagged unemployment rate. Thus our unemployment equation is superior to the Lucas-Rapping equation based on the equilibrium framework.
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I am grateful Professors J. W. Nevile, V. K. Srivastava, the editor of this Journal, Professor Baldev Raj and two referees for their comments on an earlier version of this paper. I wish to thank Kris Corcoran for her excellent research assistance. The research contained in this paper is financed by a grant from the Faculty of Commerce and Economics.
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Rao, B.B. A disequilibrium model of real wages, employment and unemployment for the U.S.A. during 1930–1965. Empirical Economics 15, 55–75 (1990). https://doi.org/10.1007/BF01972464
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DOI: https://doi.org/10.1007/BF01972464