| Sumario: | Previous studies by the author, (1975, Chapter 6) and (1977), have investigated the demand for employment and three categories of energy consumption, using temporal data for individual subclasses in Australian manufacturing industry. It was assumed that factor demands were determined by minimizing costs subject to given levels of output and factor prices. Simple log-linear demand functions were estimated, with separate Koyck lags for each factor. The results were varied, but generally exhibited strong output effects and weak price effects, with average lags of about a year. Most importantly, the restrictions on coefficients, implied by the explicitly additive Cobb-Douglas production function and the implicitly additive Constant Difference Elasticity of Substitution function, Hanoch (1975), were generally rejected statistically. These findings suggest that the adjustment process should be generalized to allow different speeds of response to changes in output and relative prices, and less restrictive forms chosen for the production function. The "putty-clay" vintage model, Johansen (1959) and Salter (1960), offers an appropriate generalization of the adjustment process and is adopted in this paper. It allows the speed of response to changes in output to differ from that to relative prices, and for a faster response to decreases in output than to increases. In addition, its application allows a contribution to be made to the continuing debate concerning the validity of the vintage model of production.
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