Aggregate Employment and Intertemporal Substitution in the UK
AbstractIn this paper the author sets up, estimates, and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis. The model is derived as the optimal decision rule of an infinitely-living household maximizing an intertemporal CES utility function over consumption and leisure. The evidence suggests that for aggregate employee hours the model is rejected, but that for the total number of employees in employment the estimates are broadly consistent with the theory. The assumed constant elasticity of substitution is estimated at around 0.2, and this estimate implies a short-run real wage and real interest rate elasticity of labor supply of the same order. Copyright 1987 by Royal Economic Society.
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Bibliographic InfoArticle provided by Royal Economic Society in its journal The Economic Journal.
Volume (Year): 97 (1987)
Issue (Month): 386 (June)
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Postal: Office of the Secretary-General, School of Economics and Finance, University of St. Andrews, St. Andrews, Fife, KY16 9AL, UK
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Web page: http://www.res.org.uk/
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- Holland, Allison & Scott, Andrew, 1998.
"The Determinants of UK Business Cycles,"
Royal Economic Society, vol. 108(449), pages 1067-92, July.
- Stephen Millard & Andrew Scott & Marianne Sensier, 1999. "Business cycles and the labour market can theory fit the facts?," Bank of England working papers 93, Bank of England.
- Nicholas Apergis & Costas Katrakilidis, 2001. "Testing the intertemporal substitution hypothesis: The impact of income uncertainty on savings," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(3), pages 537-548, September.
- João Ricardo Faria & Miguel León-Ledesma, 2000. "The Intertemporal Substitution Model of Labor Supply in an Open Economy," Studies in Economics 0009, Department of Economics, University of Kent.
- Faria, Joao Ricardo & Leon-Ledesma, Miguel A., 2005. "Real exchange rate and employment performance in an open economy," Research in Economics, Elsevier, vol. 59(1), pages 67-80, March.
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