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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. Laszlo Goerke, 2020. "An Efficiency-Wage Model with Habit Concerns about Wages," CESifo Working Paper Series 8428, CESifo.

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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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