ALTERNATIVE MEASURES OF AGGREGATE EXCESS LABOR DEMAND

I. Introduction In a recent issue of this Journal, G. Briscoe and D.A. Peel present novel estimates of the relationship between aggregate excess labor demand and the rate of change of nominal wages. While I agree with their view that in explaining wage changes a more direct measure of excess labor demand than the unemployment rate would be preferred, I feel their method for calculating this measure is seriously flawed. While the authors explicitly hypothesize a disequilibrium process generating wage changes they ignore the implications labor market disequilibrium has for the estimation of their labor demand curve. I discuss below the implications of labor market disequilibrium for the Briscoe‐Peel method of estimating excess labor demand.