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Models of labour services and estimates of total factor productivity

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Abstract:

This article examines the manner in which labour services are modelled in the aggregate production function, concentrating on the relationship between numbers employed and average hours worked. It argues that numbers employed and hours worked are not perfect substitutes and that conventional estimates of total factor productivity which, by using total hours worked as the measure of labour services, assume they are perfect substitutes, will be biased when there are marked changes in average hours worked. The relevance of the theoretical argument is illustrated using data for the United States and the United Kingdom.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840802314549

Affiliations: 1: Department of Economics, University of Melbourne, Victoria 3010, Australia 2: University of Westminster, London, UK

Publication date: November 1, 2010

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