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Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Comment*

* This paper is a replication of an original study

Author

Listed:
  • Shuhei Takahashi

Abstract

Chang and Kim (2007) develop an incomplete asset markets model incorporating discrete labor supply and idiosyncratic labor productivity. Their results resolve long-standing puzzles for business cycle models. Specifically, they produce a low correlation between aggregate hours worked and labor productivity (0.23) and a labor wedge with 76 percent the volatility of output. I show that these results arise from errors in their computational method. I resolve their model using a corrected method and find a strong, positive correlation between hours and productivity (0.80). Fluctuations in the labor wedge decrease to 24 percent of those in output.

Suggested Citation

  • Shuhei Takahashi, 2014. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Comment," American Economic Review, American Economic Association, vol. 104(4), pages 1446-1460, April.
    • Handle: RePEc:aea:aecrev:v:104:y:2014:i:4:p:1446-60
    Note: DOI: 10.1257/aer.104.4.1446
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    Citations

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    Cited by:

    1. Yongsung Chang & Sun-Bin Kim, 2014. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Reply," American Economic Review, American Economic Association, vol. 104(4), pages 1461-1466, April.
    2. Takeki Sunakawa, 2020. "Applying the Explicit Aggregation Algorithm to Heterogeneous Macro Models," Computational Economics, Springer;Society for Computational Economics, vol. 55(3), pages 845-874, March.
    3. Chipeniuk, Karsten O. & Katz, Nets Hawk & Walker, Todd B., 2022. "Households, auctioneers, and aggregation," European Economic Review, Elsevier, vol. 141(C).
    4. Michael Reiter, 2019. "Solving Heterogeneous Agent Models with Non-convex Optimization Problems: Linearization and Beyond %," 2019 Meeting Papers 1048, Society for Economic Dynamics.
    5. Shuhei Takahashi, 2020. "Time-Varying Wage Risk, Incomplete Markets, and Business Cycles," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 37, pages 195-213, July.
    6. Stephen J. Terry, 2017. "Alternative Methods for Solving Heterogeneous Firm Models," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(6), pages 1081-1111, September.
    7. Pavol Majher, 2015. "Firm entry and exit, investment irreversibility, and business cycle dynamics," Vienna Economics Papers vie1513, University of Vienna, Department of Economics.
    8. Pavol Majher, 2015. "Firm entry and exit, investment irreversibility, and business cycle dynamics," Vienna Economics Papers 1513, University of Vienna, Department of Economics.
    9. Robert Kirkby, 2023. "Quantitative Macroeconomics: Lessons Learned from Fourteen Replications," Computational Economics, Springer;Society for Computational Economics, vol. 61(2), pages 875-896, February.
    10. Karsten O. Chipeniuk & Nets Hawk Katz & Todd Bruce Walker, 2022. "Households, Auctioneers, and Aggregation," CAEPR Working Papers 2022-005 Classification-E, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.

    Replication

    This item is a replication of:
  • Yongsung Chang & Sun-Bin Kim, 2007. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 97(5), pages 1939-1956, December.

    • More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations (AER 2007) in ReplicationWiki
    2. Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Comment (AER 2014) in ReplicationWiki

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