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On the Aggregate Labor Supply: A Progress Report

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  • Yongsung Chang
  • Sun-Bin Kim

Abstract

At the aggregate level, the labor supply elasticity can significantly depart from the micro elasticity. In an economy where households make decisions on the labor market participation, the slope of the aggregate labor supply curve is determined by the distribution of reservation wages rather than by the willingness to substitute leisure intertemporally. We present a model economy where earnings and wealth distributions are comparable to those in the micro data. We find that the aggregate labor supply elasticity of such an economy is around 1, which is greater than the typical micro estimates but smaller than those often assumed in the aggregate models. Our model also sheds some light on the recent debate on the failure of the representative agent model.

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  • Yongsung Chang & Sun-Bin Kim, 2016. "On the Aggregate Labor Supply: A Progress Report," Global Economic Review, Taylor & Francis Journals, vol. 45(3), pages 275-293, July.
    • Handle: RePEc:taf:glecrv:v:45:y:2016:i:3:p:275-293
    DOI: 10.1080/1226508X.2016.1211813
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    Cited by:

    1. Mark Kanazawa & Mark T. Kanazawa, 2016. "Local consequences of climate change: State park visitations on the North Shore of Minnesota," Working Papers 2016-03, Carleton College, Department of Economics.

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