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Unidimensionality, asymmetry and (S,s) rules in labour demand

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We analyse the conditions under which an (S,s) rule may be implemented in the case of labour demand. The (S,s) rule implies a specific ordering of choices: downward adjustment, nonadjustment and upward adjustment with the decision of inaction lying crucially in the middle. This requires an exact negative relation between the choice-specific error terms. The particular ordering of choices implied may be estimated by an ordered probit. We test the (S,s) rule nesting the ordered probit within a multinomial model with correlated error terms. The restriction to a univariate error distribution is rejected by the data.
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Document Type: Research Article

Affiliations: Department of Economics, University of Brescia, Italy

Publication date: 2007-08-01

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