Aggregate Uncertainty, Forward Looking Behaviour and the Demand for Manufacturing Labour in the UK.

Theory suggests that the level of uncertainty may affect the output and employment decisions of firms, although in general the sign of the effect is ambiguous. A GARCH-M estimator is used to model the conditional variance of GDP. This measure is then employed in backward- and forward-looking specifications of the demand for manufacturing labor. The results are that the level of aggregate uncertainty has a significant negative effect on manufacturing employment and that the forward-looking dynamic specification may be rejected against a backward-looking alternative. Copyright 1994 by Blackwell Publishing Ltd