Labor demand research: toward a better match between better theory and better data

John T. Addison, Pedro Portugal, José Varejão

Research output: Contribution to journalArticlepeer-review

11 Citations (Scopus)


At first blush, most advances in labor demand were achieved by the late 1980s. Since then progress might appear to have stalled. We argue to the contrary that significant progress has been made in understanding labor market frictions and imperfections, and in modeling search behavior and heterogeneous preferences. Perhaps most notable have been the improvements in data, in the form of longitudinal matched employer-employee data, and in techniques and algorithms (e.g. for solving heterogeneous parameter models). In short, the Cinderella status of the field is frankly overdrawn. Nevertheless, a chief lacuna remains the need for a better match between theory and data. This paper provides a critical albeit eclectic assessment of these developments, along the dimensions of the static and dynamic theory of labor demand, wage formation, and estimation, noting advances and limitations. As is conventional, somewhat greater emphasis is placed on the latter.

Original languageEnglish
Pages (from-to)4-11
Number of pages8
JournalLabour Economics
Issue numberSI
Publication statusPublished - 1 Oct 2014


  • Establishment-level functions
  • Input heterogeneity
  • Labor adjustment costs
  • Labor demand
  • Multiple fixed effects
  • Wage and employment determination


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