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Microfoundations and Macro Implications of Indivisible Labor

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Casey B. Mulligan

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Abstract

I show that the indivisible labor' models of Diamond and Mirrlees (1978, 1986), Hansen (1985), Rogerson (1988), Christiano and Eichenbaum (1992), and many others are, when aggregated across persons with the same marginal utility of income, equivalent to the divisible labor model of Lucas and Rapping (1969); any data on aggregate hours and earnings generated by the divisible (indivisible) model can be generated by some parameterization of the indivisible (divisible) model. The same is true when macro' data is obtained by aggregating over time and across people. This equivalence means that the indivisibility of labor per se does not have implications for macroeconomics. Nor does indivisibility have aggregate' normative implications. I then build a micro model of the bunching of work in continuous time as the consequence of fixed costs and fatigue effects.' Only in a special case does the micro model has as its reduced form the indivisible labor model. In other cases, the bunching of work in time may have unique macro implications. Indivisible and bunching models of labor are shown to have implications for public finance.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7116.

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Date of creation: May 1999
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Handle: RePEc:nbr:nberwo:7116

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Casey B. Mulligan, 2000. "Can Monopoly Unionism Explain Publicly Induced Retirement?," NBER Working Papers 7680, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Casey B. Mulligan, 2001. "Aggregate Implications of Indivisible Labor," NBER Working Papers 8159, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Peter Kuhn & Fernando Lozano, 2006. "The Expanding Workweek? Understanding Trends in Long Work Hours Among U.S. Men, 1979-2004," IZA Discussion Papers 1924, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  4. Thomas Renstrom & Parantap Basu, 2004. "Optimal dynamic taxation with indivisible labor," Money Macro and Finance (MMF) Research Group Conference 2003 78, Money Macro and Finance Research Group. [Downloadable!]
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  5. Basu, Parantap & Renström, Thomas I, 2002. "When to Tax Labour?," CEPR Discussion Papers 3456, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Basu, Parantap & Marsiliani, Laura & Renström, Thomas I, 2004. "Optimal Dynamic Taxation with Indivisible Labour," CEPR Discussion Papers 4190, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. John C. Ham & Kevin T. Reilly, 2002. "Testing Intertemporal Substitution, Implicit Contracts, and Hours Restriction Models of the Labor Market Using Micro Data," American Economic Review, American Economic Association, vol. 92(4), pages 905-927, September. [Downloadable!]
  8. Antonio García Sánchez & María del Mar Vázquez Méndez, 2005. "The timing of work in a general equilibrium model with shiftwork," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 149-179, January. [Downloadable!]
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