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Macroeconomic analyses and microeconomic analyses of labor supply

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  • Ashenfelter, Orley

Abstract

This paper reports on the current status of the microeconomic research on labor supply behavior. The purpose is to direct attention to microeconomic research that may be helpful in the continuing evaluation of aggregate models designed to explain the dynamic behavior of wages, employment and unemployment. The approach is hopelessly empirical, and the emphasis throughout is on models specified completely enough to allow confrontation with the kind of data actually available.The first part of the paper is addressed to microeconomists, however. It is a brief attempt to provide a sketch of the stylized facts that aggregate models of the labor market are meant to address. These include (1) the serial "persistence" in the change in unemployment (or employment),(2) the absence of persistence in the change in the real wage rate, and (3) the continued existence of a negative correlation between nominal price changes and unemployment rates.The microeconomic (longitudinal) data turn out to be difficult to square up with the simplest life-cycle models of labor supply. Contrary to the predictions of the models, the data indicate that (1) average hours and average real wages move in the same direction only some of the time, and that (2) the within life-cycle, person-specific correlation between hours and wages is negative. The microeconomic (experimental) data indicate other puzzles. More elaborate models incorporating measurement error, non-separable preferences, and unanticipated wage movements may explain these findings, but they are also likely to contain parameters that are noteasily identified with the kind of data actually available. Perhaps an alternative approach may be more fruitful in reconciling the long run determination of hours worked by worker preferences with the short run interaction of observed employment and earnings.

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Bibliographic Info

Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 21 (1984)
Issue (Month): 1 (January)
Pages: 117-156

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Handle: RePEc:eee:crcspp:v:21:y:1984:i::p:117-156

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References

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  1. Thomas J. Sargent, 1978. "Estimation of dynamic labor demand schedules under rational expectations," Staff Report 27, Federal Reserve Bank of Minneapolis.
  2. Thomas J. Sargent, 1973. "Rational Expectations, the Real Rate of Interest, and the Natural Rate of Unemployment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(2), pages 429-480.
  3. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  4. David Card, 1984. "An Empirical Model of Wage Indexation Provisions in Union Contracts," NBER Working Papers 1388, National Bureau of Economic Research, Inc.
  5. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Price Expectations and the Phillips Curve," American Economic Review, American Economic Association, vol. 59(3), pages 342-50, June.
  6. Orley Ashenfelter & David Card, 1982. "Time Series Representation of Economic Variables and Alternative Models of the Labor Market," Working Papers 528, Princeton University, Department of Economics, Industrial Relations Section..
  7. repec:fth:prinin:120 is not listed on IDEAS
  8. Ashenfelter, Orley & Ham, John, 1979. "Education, Unemployment, and Earnings," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S99-116, October.
  9. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  10. John Abowd & Orley Ashenfelter, 1979. "Unemployment and Compensating Wage Differentials," Working Papers 500, Princeton University, Department of Economics, Industrial Relations Section..
  11. Altonji, Joseph & Ashenfelter, Orley, 1980. "Wage Movements and the Labour Market Equilibrium Hypothesis," Economica, London School of Economics and Political Science, vol. 47(187), pages 217-45, August.
  12. John Abowd & David Card, 1984. "Intertemporal Substitution in the Presence of Long Term Contracts," Working Papers 546, Princeton University, Department of Economics, Industrial Relations Section..
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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Cited by:
  1. Uwe Hassler & Michael Neugart, 2003. "Inflation-unemployment tradeoff and regional labor market data," Empirical Economics, Springer, vol. 28(2), pages 321-334, 04.
  2. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  3. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 11-44, January.
  4. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  5. Edward C. Prescott, 1986. "Response to a skeptic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 28-33.
  6. repec:fth:prinin:234 is not listed on IDEAS
  7. repec:fth:prinin:246 is not listed on IDEAS
  8. John Bound & Alan B. Krueger, 1989. "The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?," NBER Working Papers 2885, National Bureau of Economic Research, Inc.
  9. Robert B. Barsky & Gary Solon, 1989. "Real Wages Over The Business Cycle," NBER Working Papers 2888, National Bureau of Economic Research, Inc.
  10. repec:fth:prinin:240 is not listed on IDEAS
  11. repec:fth:prinin:252 is not listed on IDEAS
  12. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, vol. 36(2), pages 269-300, November.

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