Incorporating International Competitiveness into the Demand for Labour Function: Some Issues of Specification and Interpretation*

This paper attempts to clarify the theoretical status and the empirical role of measures of ‘international competitiveness’ that have been used in econometric demand for labour equations. Some currently popular alternatives are finked to a simple version of the Salter‐Swan‐Dornbusch (‘Australian‘) dependent economy model which is found to provide insufficient basis for choosing between alternative measures, which in the Australian case at least are found to behave rather differently. In explaining employment in Australia during the period 1971‐83, the preferred competitiveness variable is found to play a marginal role only with estimated long‐run elasticity similar to that for the real labour cost