Endogenous Output in an Aggregate Model of the Labor Market.

Most aggregative labor market models contain a marginal productivity expression in which the quantity of labor appears on the left hand side of the equation, and the right hand side includes the real wage and output. Some researchers have cautioned that if the output variable is treated as exogenous, econometric difficulties may result. However, the assumption that output is exogenous has not been tested. The authors estimate an equilibrium model of the labor market, and use it to test the assumption of output exogeneity. The assumption that output is exogenous cannot be rejected by the data. Copyright 1989 by MIT Press.