Employment, Rational expectations (Economic theory), Energy consumption, Price variance, Economics, White collar workers, Blue collar workers, Prices, Industrial productivity, Production (Economic theory), and Electricity
This article shows how a general nonlinear model of dynamic factor demands that is consistent with rational expectations can be estimated and used to study the effects over time of unexpected changes in factor prices, of a changing output level, and of policies in which future price changes are anticipated. Also, economist's empirical results provide some insight into the structure of aggregate production, the importance of adjustment costs, and the role of energy as a factor input. They would stress the following results. First, the data strongly reject the hypothesis of constant returns to scale within their specification of aggregate production. This puts into question earlier studies that impose constant returns, as well as empirical q theory models, which equate marginal and average q. On the other hand, the use of time-series data makes it difficult to disentangle the extent of returns to scale from various types of technical progress. Their rejection of constant returns may be dependent on assumption of Hicks-neutral technical change. Second, the data indicate that any adjustment costs on labor are small. This is significant because it runs counter to the widely held view that adjustment costs are a major cause of the procyclical movement of productivity. Of course our data aggregate blue- and white-collar workers, and disaggregated data might yield different results.