The Relationship between Output and Employment in British Manufacturing Industries.

In recent years the cyclical behaviour of the relationship between output and employment has become the subject of many interesting theoretical and empirical investigations. In the United States Dhrymes, Hultgren, Kuh, Solow and Wilson and Eckstein have analysed labour productivity and elaborated the implications of its cyclical pattern for income distribution, profit mark-ups, adjustment costs, etc. Similar work has been done in the United Kingdom by Godley and Shepherd, Neild and, more recently, by Ball and St. Cyr. In this paper the results of a further analysis of the British data will be presented. We shall operate with a model which contains an underlying employment demand function and a short-term employment adjustment process. The employment demand function relates the desired level of employment to a number of exogenous variables and the adjustment process describes the adjustment of actual to desired employment. It would appear that the explicit recognition of the adjustment process is necessary, first, for the correct interpretation of actual employment figures (and, hence, of labour productivity as conventionally calculated) and, second, for the estimation of the desired level of employment. Our procedure is based on the fundamental assumption that the underlying employment demand function and the adjustment process are sufficient for the explanation of movements in employment, so that labour supply conditions and other factors are quantitatively unimportant. In the following section a brief sketch of the model will be given. Part II is devoted to a statistical examination of the employment demand function. In part Ill the model will be examined for structural changes and in part IV the quantitative importance of our results will be analysed. [ABSTRACT FROM AUTHOR]