Aggregate employment : demand and supply in the U.K. engineering industry

The thesis aims to explain the determination of employment at the industry level - in particular, the S.I.C. Orders of the U.K. engineering industry. The traditional demand-orientated approach is examined theoretically and empirically. Many developments are made to the models, but implausible and unstable estimates are generally found. More major developments are attempted, modelling desired output and the relationship between investment and employment with some success, but without a generally acceptable model of aggregate employment emerging. The view is taken that a major reason for this is likely to be the neglect of supply factors. Initial attempts to allow for the tightness of the labour market indicate some effect though incorrectly specified. The second half of the thesis undertakes a more rigorous and original analysis, involving the specification of an industry labour supply function, to be analysed in conjunction with the demand function. The appropriate methods of analysis and estimation depend upon assumptions about the interaction of demand and supply and the role of wages. Three stages of development are considered with increasing realism of assumptions, but increasing complexity of analysis and difficulty of estimation. The first assumes flexibility of wages, equilibrating sectors of the labour market and enabling simultaneous estimation of aggregate demand and supply. The second assumes a degree of inflexibility of wages, but homogeneity of the sectors, so that aggregate demand or supply is observed and 'regime' estimation is possible. The third stage allows for non-homogeneity-of sectors so that neither aggregate demand nor supply may be observed. Constrained estimation, via programming methods, results. Exogenous data is used to assess the extent of excess demand and supply in the labour market. Whilst the empirical results are limited, they do indicate the need for supply factors to be modelled and included in the analysis of employment.