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Aggregate Employment and Intertemporal Substitution in the UK


  • Alogoskoufis, George S


In this paper the author sets up, estimates, and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis. The model is derived as the optimal decision rule of an infinitely-living household maximizing an intertemporal CES utility function over consumption and leisure. The evidence suggests that for aggregate employee hours the model is rejected, but that for the total number of employees in employment the estimates are broadly consistent with the theory. The assumed constant elasticity of substitution is estimated at around 0.2, and this estimate implies a short-run real wage and real interest rate elasticity of labor supply of the same order. Copyright 1987 by Royal Economic Society.

Suggested Citation

  • Alogoskoufis, George S, 1987. "Aggregate Employment and Intertemporal Substitution in the UK," Economic Journal, Royal Economic Society, vol. 97(386), pages 403-415, June.
  • Handle: RePEc:ecj:econjl:v:97:y:1987:i:386:p:403-15

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    References listed on IDEAS

    1. Robert B. Archibald, 1977. "On the Theory of Industrial Price Measurement Output Price Indexes," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 6, number 1, pages 57-72 National Bureau of Economic Research, Inc.
    2. Burgess, David F., 1974. "Production theory and the derived demand for imports," Journal of International Economics, Elsevier, vol. 4(2), pages 103-117, May.
    3. Caves, Douglas W & Christensen, Laurits R & Diewert, W Erwin, 1982. "The Economic Theory of Index Numbers and the Measurement of Input, Output, and Productivity," Econometrica, Econometric Society, vol. 50(6), pages 1393-1414, November.
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    Cited by:

    1. Felteau, Claude, 1989. "Commentaire sur le texte de Bernard Fortin," L'Actualité Economique, Société Canadienne de Science Economique, vol. 65(4), pages 508-514, décembre.
    2. Holland, Allison & Scott, Andrew, 1998. "The Determinants of UK Business Cycles," Economic Journal, Royal Economic Society, vol. 108(449), pages 1067-1092, July.
    3. Nicholas Apergis & Costas Katrakilidis, 2001. "Testing the intertemporal substitution hypothesis: The impact of income uncertainty on savings," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(3), pages 537-548, September.
    4. João Ricardo Faria & Miguel León-Ledesma, 2000. "The Intertemporal Substitution Model of Labor Supply in an Open Economy," Studies in Economics 0009, School of Economics, University of Kent.
    5. Faria, Joao Ricardo & Leon-Ledesma, Miguel A., 2005. "Real exchange rate and employment performance in an open economy," Research in Economics, Elsevier, vol. 59(1), pages 67-80, March.
    6. Stephen Millard & Andrew Scott & Marianne Sensier, 1999. "Business cycles and the labour market can theory fit the facts?," Bank of England working papers 93, Bank of England.

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