ABSTRACT
The contribution of this paper is to discuss the problems introduced by the aggregation of labour in a model of wage formation and employment demand. For this purpose, a simultaneous equation system is estimated and tested on data for Austrian industry. The model is designed to capture bargaining procedures and market forces in the institutional setting of Austrian incomes policies. Since effects of incomes policies usually differ between various labour types, the choice of appropriate levels of labour aggregates is critical. In this respect, two mutually related problems of aggregation are considered:
The analyst faces the problem of information losses when aggregated observations and models are used instead of disaggregated ones. This is the well-known question of whether aggregation is necessarily bad. It is dealt with in statistical aggregation approaches, for instance on the lines of Grunfeld and Griliches (1960) and Zellner (1962). In the following, Zellner's test for the existence of aggregates based on the micro-homogeneity property will prove to be useful.
In the course of political decision-making, the problem arises of how to manage economic performance in various segments of society when the number of signals and decision instruments is limited. The incomes policies which are dealt with here provide a typical example. To some extent, this problem is related to the axiomatic approach of aggregation of preferences, technologies, and derived demand systems along the lines of Gorman (1968). However, bargaining procedures add specific features which are beyond the scope of received aggregation theory.
