Testing weak exogeneity by multivariate cointegration techniques : the demand for labour in Finnish manufacturing

The study examines the efficiency of the single-equation approach in modelling employment determination in the context ofFinnish labour market data. The task is accomplished by using the multivariate cointegration techniques developed in Johansen (1988) and Johansen and Juselius (1990). The results suggest that the weak exogeneity of the conventional conditioning variables, including output, capital stock, wages, product prices and material prices cannot be taken for granted. The possibility of the loss of information involved in contemporaneous conditioning implies that care should be taken in applying single-equation methods to Finnish labour market data.