This paper specifies a flexible model of labor demand in the manufacturing sector. The model is further extended to incorporate a risk function part which allows identifying the determinants of both level and variations in the employment. The risk function is particularly important when designing public policies that are geared at reducing the variance of employment or those policies that seek to increase employment in manufacturing. Since the variance of the function is both industry- and time-specific, it allows for the identification of industries that are from the perspective of vulnerable employment and design of policies targeting specific segment of the industry. In addition the paper looks at the time variant efficiency of the manufacturing industry in the choice of the level of employment that is technically necessary to produce a given level of output to satisfy the market demand. In applying this model to Tunisian manufacturing sector we add another dimension to the development of the literature on the estimation of a labor demand relationship.
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