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

Abstract: This paper is concerned with the estimation of an employment relationship and employment efficiency under production risk using a panel of Zimbabwe's manufacturing industries. A flexible labour demand functions are used and consist of two parts: the traditional labour demand function and labour demand variance function. Labour demand is a function of wages, output, quasi-fixed inputs and time variables. The variance function is a function of the determinants of labour demand and a number of production and policy characteristic variables. It appears in a multiplicative form with the demand function and it accommodates both positive and negative marginal effects with respect to the determinants of the variance. A multi-step procedure is used to estimate the parameters of the model. Estimation of industry and time-varying employment efficiency is also considered. Employment efficiency is defined in terms of the distance from the employment frontier defined as minimum employment required to produce a given level of output. The empirical results show that the average employment efficiency is 92%.

Keywords: Labour demand; variance; efficiency; manufacturing industries; Zimbabwe

JEL-codes: C23; C51; D24; E24

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

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