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Wealth and Labor Supply Heterogeneity

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  • Jose Mustre-del-Rio

    (Federal Reserve Bank of Kansas City)

Abstract

This paper examines the importance of ex-ante heterogeneity for understanding the relationship between wealth and labor supply when markets are incomplete. An infinite horizon model is estimated where labor supply is indivisible and households are ex-ante heterogeneous in their labor disutility and market skills. The model replicates key features of the distribution of employment, wages, and wealth observed in the data. Importantly, it reverses the prediction that employment falls with wealth, a pervasive feature of models without ex-ante heterogeneity. A byproduct of the model's empirical performance is that it implies labor supply responses to unanticipated wages changes (e.g., Frisch elasticities) that are a half to two-thirds of those recovered from models with only ex-post heterogeneity. (Copyright: Elsevier)

Suggested Citation

  • Jose Mustre-del-Rio, 2015. "Wealth and Labor Supply Heterogeneity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 18(3), pages 619-634, July.
    • Handle: RePEc:red:issued:12-158
    DOI: 10.1016/j.red.2014.09.002
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    More about this item

    Keywords

    Indivisible labor; Frisch elasticity; Incomplete markets; Structural estimal;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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