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Growth and Labor Income Risk with Inelastic and Elastic Labor Supply

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  • Clemens, Christiane

Abstract

We discuss long-run growth in an economy which is subject to aggregate productivity shocks affecting all factors of production. We demonstrate that the presence of labor income risk unambiguously is an important determinant of long-run expected growth. The issue of dynamic inefficiency of the underlying allocation is related to the size of the risk premium on capital return. The paper also examines the effects distributive disturbances and elastic labor supply, the latter giving rise to the possibility of multiple equilibria.

Suggested Citation

  • Clemens, Christiane, 2004. "Growth and Labor Income Risk with Inelastic and Elastic Labor Supply," Hannover Economic Papers (HEP) dp-305, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    • Handle: RePEc:han:dpaper:dp-305
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    References listed on IDEAS

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    19. Clemens, Christiane & Soretz, Susanne, 1997. "Welfare Effects of Income Taxation in a Model of Stochastic Growth," Hannover Economic Papers (HEP) dp-210, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
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    More about this item

    Keywords

    income risk; labor supply; endogenous growth;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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