The Intertemporal-Substitution Hypothesis is Alive and Well ( But Hiding in the Data)
AbstractAccording to the intertemporal-substitution hypothesis, which underlies the typical empirical real business cycle model, cyclical fluctuations in employment and hours of work are optimizing labor-supply responses to short-run aggregate demand shifts. We demonstrate that previous empirical labor-supply research has used inappropriate data to test the intertemporal-substitution hypothesis. We estimate a fixed-effects life-cycle labor-supply model with more informative data, the triannual micro data of the Survey of Income and Program Participation. We find economy-wide wage elasticities of employment and hours worked per employee of +1.55 and +0.51, which support the intertemporal-substitution hypothesis and give econometric credibility to the labor-market specification of empirical real business cycle models.
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Bibliographic InfoPaper provided by Indiana - Center for Econometric Model Research in its series Papers with number 93-014.
Length: 19 pages
Date of creation: 1993
Date of revision:
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Postal: Indiana University, Center for Econometric Model Research, Department of Economics; Bloomington, IN 47405.
Web page: http://www.indiana.edu/~econweb/
More information through EDIRC
business cycles ; labour supply;
Other versions of this item:
- Jean Kimmel, 1993. "The Intertemporal-Substitution Hypothesis is Alive and Well (But Hiding in the Data)," Upjohn Working Papers and Journal Articles 93-19, W.E. Upjohn Institute for Employment Research.
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
- I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
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