Heterogeneous labor and the dynamics of aggregate labor demand: Some estimations using panel data

In this article we pay attention to the conditions that make an aggregate labor demand equation consistent with the underlying model at a more disaggregated level when heterogeneity exists across firms or across workers. It is argued that this consistency rests on the condition that employment evolves in the same direction in all firms and for all skill levels.Moreover, it is shown empirically that even though the above condition is satisfied, satisfactory estimations of an aggregated model can hide misspecification problems that become apparent when one also estimates the underlying disaggregated models.