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Cross-Sectional and Aggregate Labor Supply

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  • Yongsung Chang
  • Sun-Bin Kim
  • Kyooho Kwon
  • Richard Rogerson

Abstract

Standard heterogeneous agent macro models that highlight idiosyncratic productivity shocks do not generate the near zero cross-sectional correlation between hours and wages found in the data. We ask whether matching this moment matters for business cycle properties of these models. To do this we explore two extensions of the model in Chang et al. (2019) that can match this empirical cross-section correlation. One of these departs from the assumption of balanced growth preferences. The other introduces an idiosyncratic shock to the opportunity cost of market work that is highly correlated with the shock to market productivity. While both extensions can match the empirical correlation, they have large and opposing effects on the cyclical volatility of the labor market. We conclude that the cross-sectional moment is important for business cycle analysis and that more work is needed to distinguish the potential mechanisms that can generate it.

Suggested Citation

  • Yongsung Chang & Sun-Bin Kim & Kyooho Kwon & Richard Rogerson, 2019. "Cross-Sectional and Aggregate Labor Supply," ISER Discussion Paper 1063, Institute of Social and Economic Research, Osaka University.
  • Handle: RePEc:dpr:wpaper:1063
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    1. Cross-Sectional and Aggregate Labor Supply
      by Christian Zimmermann in NEP-DGE blog on 2019-10-30 14:29:53

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