Modeling production and employment in the Norwegian private services

Abstract

After discussing the choice of an appropriate production function for the Norwegian private services, we use quarterly data to estimate models for production and labor demand over 1979Q1-2001Q3. The results show that in the long-run the production function is consistent with a profit-maximizing behavior. Moreover, Norwegian private services are labor intensive, which accords with the stylized facts of the literature on services economics. However, due to its sluggish movements, the role of capital in the production process is difficult to grasp. Finally, not only the models presented track the data pretty well, they also are serious contenders to the rival explanations of the current models in RIMINI, the Norwegian Central Bank macro-model.