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Macroeconomic Analysis and Microeconomic Analyses of Labor Supply

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  • Orley Ashenfelter

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

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1500.

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Date of creation: Nov 1984
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Publication status: published as Ashenfelter, Orley, 1984. "Macroeconomic analyses and microeconomic analyses of labor supply," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 117-156, January.
Handle: RePEc:nbr:nberwo:1500

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  1. 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.
  2. repec:fth:prinin:120 is not listed on IDEAS
  3. Lucas, Robert E, Jr & Rapping, Leonard A, 1969. "Price Expectations and the Phillips Curve," American Economic Review, American Economic Association, American Economic Association, vol. 59(3), pages 342-50, June.
  4. Card, David, 1986. "An Empirical Model of Wage Indexation Provisions in Union Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages S144-75, June.
  5. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
  6. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 1009-44, December.
  7. John Abowd & Orley Ashenfelter, 1979. "Unemployment and Compensating Wage Differentials," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 500, Princeton University, Department of Economics, Industrial Relations Section..
  8. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  9. Orley Ashenfelter & David Card, 1982. "Time Series Representation of Economic Variables and Alternative Models of the Labor Market," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 528, Princeton University, Department of Economics, Industrial Relations Section..
  10. John Abowd & David Card, 1984. "Intertemporal Substitution in the Presence of Long Term Contracts," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 546, Princeton University, Department of Economics, Industrial Relations Section..
  11. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  12. Altonji, Joseph & Ashenfelter, Orley, 1980. "Wage Movements and the Labour Market Equilibrium Hypothesis," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 47(187), pages 217-45, August.
  13. Orley Ashenfelter & John C. Ham, 1979. "Education, Unemployment and Earnings," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 501, Princeton University, Department of Economics, Industrial Relations Section..
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Cited by:
  1. repec:fth:prinin:240 is not listed on IDEAS
  2. repec:fth:prinin:234 is not listed on IDEAS
  3. Prescott, Edward C., 1986. "Theory ahead of business-cycle measurement," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 25(1), pages 11-44, January.
  4. Edward C. Prescott, 1986. "Response to a skeptic," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall, pages 28-33.
  5. repec:fth:prinin:246 is not listed on IDEAS
  6. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 24, Federal Reserve Bank of Minneapolis.
  7. Robert B. Barsky & Gary Solon, 1989. "Real Wages Over The Business Cycle," NBER Working Papers 2888, National Bureau of Economic Research, Inc.
  8. Merz, Monika, 1995. "Search in the labor market and the real business cycle," Journal of Monetary Economics, Elsevier, Elsevier, vol. 36(2), pages 269-300, November.
  9. 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.
  10. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 9(1), pages 1-24, January.
  11. Hassler, Uwe & Neugart, Michael, 2002. "Inflation-Unemployment Tradeoff and Regional Labor Market Data," Darmstadt Discussion Papers in Economics 37697, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
  12. repec:fth:prinin:252 is not listed on IDEAS

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