5. Conclusion


This paper concentrates on the factors that drive labour demand. It adds to a number of Australian studies conducted in the late 1990s/early 2000s by updating estimates of key labour demand parameters and clarifying their interpretation. Following the broader aggregate labour demand literature, we derive a conditional long-run labour demand equation via a representative firm-level profit maximising problem, where production takes place according to a constant elasticity of substitution production function. Our estimates of important labour demand parameters, such as the elasticity of substitution between capital and labour, are consistent with previous Australian studies.

We have limited this paper to modelling the demand for heads (that is, number of workers) largely to avoid complexity associated with measuring total hours worked. Our future research must address these measurement challenges so that we can meet our ultimate goal of modelling the short- and long-run relationships between the number of persons employed (heads) and average hours worked.