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An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand

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  • Kennan, John

Abstract

This paper contains an equilibrium model of the labor market. The supply function allows f or temporal substitution in response to wage fluctuations, and the de mand function allows for adjustment costs. Two related issues are emp hasized: identification of supply and demand functions, and sources o f serial correlation in employment and real wages. When the supply an d demand shocks are AR(1) processes, the equilibrium process for empl oyment and real wages is a restricted VAR(2). The supply and demand f unctions are (locally) identified using only employment and real wage data. An illustrative application is presented, using U.S. data for 1948-71. Copyright 1988 by The Econometric Society.

Suggested Citation

  • Kennan, John, 1988. "An Econometric Analysis of Fluctuations in Aggregate Labor Supply and Demand," Econometrica, Econometric Society, vol. 56(2), pages 317-333, March.
  • Handle: RePEc:ecm:emetrp:v:56:y:1988:i:2:p:317-33
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    Cited by:

    1. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    2. Francisco J. Goerlich Gisbert, 1992. "Un test alternativo de la hipótesis de sustitución intertemporal del trabajo," Investigaciones Economicas, Fundación SEPI, vol. 16(2), pages 259-280, May.
    3. Card, David, 1990. "Unexpected Inflation, Real Wages, and Employment Determination in Union Contracts," American Economic Review, American Economic Association, vol. 80(4), pages 669-688, September.
    4. Khorunzhina, Natalia, 2015. "Real business-cycle model with habits: Empirical investigation," Economic Modelling, Elsevier, vol. 46(C), pages 61-69.
    5. John Creedy & Alan Duncan, 2005. "Aggregating Labour Supply and Feedback Effects in Microsimulation," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 8(3), pages 277-290, September.
    6. Kniesner, T.J. & Kimmel, J., 1993. "The Intertemporal-Substitution Hypothesis is Alive and Well ( But Hiding in the Data)," Papers 93-014, Indiana - Center for Econometric Model Research.
    7. Modesto, Leonor & Thomas, Jonathan P., 2001. "An analysis of labour adjustment costs in unionized economies," Labour Economics, Elsevier, vol. 8(4), pages 475-501, September.
    8. Robert B. Barsky & Gary Solon, 1989. "Real Wages Over The Business Cycle," NBER Working Papers 2888, National Bureau of Economic Research, Inc.
    9. Seckin, Aylin, 2001. "Consumption-leisure choice with habit formation," Economics Letters, Elsevier, vol. 70(1), pages 115-120, January.
    10. Robert A. Amano & Tony S. Wirjanto, "undated". "The Dynamic Behaviour of Canadian Imports and the Linear-Quadratic Model: Evidence Based on the Euler Equation," Staff Working Papers 94-6, Bank of Canada.
    11. Rossana, Robert J., 1998. "On the adjustment matrix in error correction models," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 427-444, July.
    12. Kimmel, Jean & Kniesner, Thomas J., 1998. "New evidence on labor supply:: Employment versus hours elasticities by sex and marital status," Journal of Monetary Economics, Elsevier, vol. 42(2), pages 289-301, July.
    13. Canova, Fabio & Sala, Luca, 2009. "Back to square one: Identification issues in DSGE models," Journal of Monetary Economics, Elsevier, vol. 56(4), pages 431-449, May.
    14. Olivier J. Blanchard, 1986. "Empirical Structural Evidence On Wages, Prices and Employment in the US," Working papers 431, Massachusetts Institute of Technology (MIT), Department of Economics.
    15. Orazio P. Attanasio, 1998. "Consumption Demand," NBER Working Papers 6466, National Bureau of Economic Research, Inc.
    16. Nakajima, Tomoyuki, 2005. "A business cycle model with variable capacity utilization and demand disturbances," European Economic Review, Elsevier, vol. 49(5), pages 1331-1360, July.
    17. Lex Borghans, 2000. "Wage Elasticities of the Supply of R & D Workers in the Netherlands," Econometric Society World Congress 2000 Contributed Papers 1175, Econometric Society.
    18. Julio Carrillo & Patrick Fève & Julien Matheron, 2007. "Monetary Policy Inertia or Persistent Shocks: A DSGE Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 1-38, June.
    19. Charles A. Fleischman, 1997. "The GMM parameter normalization puzzle," Finance and Economics Discussion Series 1997-43, Board of Governors of the Federal Reserve System (U.S.).
    20. Robert A. Amano, "undated". "Empirical Evidence on the Cost of Adjustment and Dynamic Labour Demand," Staff Working Papers 95-3, Bank of Canada.
    21. Gerwin Bell & Norikazu Tawara, 2009. "The Size of Government and U.S.-European Differences in Economic Performance," IMF Working Papers 09/92, International Monetary Fund.
    22. Kyoung Jin Choi & Gyoocheol Shim & Yong Hyun Shin, 2008. "Optimal Portfolio, Consumption-Leisure And Retirement Choice Problem With Ces Utility," Mathematical Finance, Wiley Blackwell, vol. 18(3), pages 445-472.
    23. Fabio Canova, 2009. "Comment to "Weak instruments robust tests in GMM and the New Keynesian Phillips curve" by Frank Kleibergen and Sophocles Mavroeidis," Economics Working Papers 1159, Department of Economics and Business, Universitat Pompeu Fabra.

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