Labor demand and economic development policy

Neoclassical theory presumes that the demand for labor is a function of its real wage. Many local development agencies have taken this proposition as an article of faith, designing policies that effectively lower the real cost of labor. Empirical evidence for the textiles and electronics industries in a set of states in the USA provides only limited support for this theory and its implied policy menu. Alternative models of the demand for labor are explored, including neo-Keynesian fixed-price quantity-adjustment models. Analysis is based on a set of time-series adjustment models which emphasize the dynamics of labor demand.