Abstract: This paper analyzes the effect of time aggregation on
estimates of the elasticities of output with respect to employment and
to average hours of work. The main goal is to get accurate estimates of
production function parameters. Low frequency data generate better
estimates of outputemployment elasticity while high frequency data
generate better estimates of outputaverage hours elasticity. This
result comes from the fact that time aggregation increases (decreases)
the bias in the estimate of the elasticity with respect to average hours
(employment). Estimations of these elasticities at different data
frequencies and numerical simulations illustrate this point. In
addition, this estimation methodology shows that the elasticity of
output with respect to employment is bigger than the elasticity of
output with respect to average hours, as theory predicts, contradicting
an established result in the literature.
Keywords: Labor elasticity, production function, time aggregation, hours, employment
Full paper (443 KB PDF)
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Last update: July 16, 1997
