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Habit persistence and the long-run labor supply

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  • Struck, Clemens C.

Abstract

Standard macroeconomic models possess the undesirable feature that people stop working in the long run. Assuming standard parameters, the neoclassical model predicts that 2% of annual productivity growth leads to a 99% decline in the labor supply after 624 years. Yet, this contradicts the fact that labor hours per capita are relatively stable, even over a long period of time. This paper shows how internal and external habit persistence each work to stabilize the long run labor supply, independent of key parameter choices.

Suggested Citation

  • Struck, Clemens C., 2014. "Habit persistence and the long-run labor supply," Economics Letters, Elsevier, vol. 124(2), pages 243-247.
    • Handle: RePEc:eee:ecolet:v:124:y:2014:i:2:p:243-247
    DOI: 10.1016/j.econlet.2014.05.027
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    Cited by:

    1. Brendan Epstein & Miles S. Kimball, 2014. "The Decline of Drudgery and the Paradox of Hard Work," International Finance Discussion Papers 1106, Board of Governors of the Federal Reserve System (U.S.).
    2. Goerke, Laszlo, 2020. "An Efficiency-Wage Model with Habit Concerns about Wages," IZA Discussion Papers 13454, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Habit formation; Labor supply; Long-run;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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