SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: This paper presents a dynamic adjustment model of employment. The model is applied to a panel of ten Zimbabwean manufacturing industries observed over the period 1970-1993. The adjustment process is industry and time specific. The adjustment parameter is specified in terms of factors affecting the speed of adjustment. Industries are assumed to adjust their labour inputs towards a desired level of labour-use. A labour requirement function is specified in terms of observable variables and is used to model the desired level of labour-use. In evaluating alternative specifications, we used a flexible translog functional form where the labour requirement is a function of wages, output and capital stock. The empirical results show that in the long run, employment demand responds greatest to wages, followed by capital stock changes, and least by output. The sample mean annual speed of adjustment in employment is 33%. We further examined labour-use efficiency of different industries defined as the ratio of optimal to the observed level of employment. The rate of over-use of labour ranges across industries from 6.8% to 8.1% over the period of this study.

Keywords: Dynamics; employment; labour-use efficiency; panel data; Zimbabwe's manufacturing; speed of adjustment

JEL-codes: C23; J23; L60

20 pages, First version: November 6, 1998. Revised: August 15, 2003.

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