ABSTRACT

 This research work was undertaken to investigate how compensation of employee was explained by consumption of ·fixed capital, Indirect Taxes, Value added at current basic prices and operating Surplus. Which constitute Cost Components of Value added a: current prices: A National Accounts of Nigeria, for four economic activity sectors from 1981 to 2006,. published in 2007.The work used Panel data Analysis based on Ordinary Least Square (OLS), fixed effects model (FEM), random effects model (REM) and mixed model. The results showed that: Compensation function was positively explained by Consumption of fixed capital, Value added at current basic prices and Operating Surplus, while Indirect Taxes was negatively related to compensation. It also showed that coefficients of Indirect Taxes. Value added at current basic prices and Operating Surplus are all statistically significant. The restricted F-test for the estimates showed that compensation of employee function has not changed much across the sectors but has changed much more over the years. ·Akaike information criterion (AIC) revealed that random effect model formulated in this study is better than fixed effect model. This is also collaborated by Hausman's specification test. Which shows that random effects model provides the best estimates in this study.