The aggregate implications of individual labor supply heterogeneity
This paper examines the Frisch elasticity at the extensive margin of labor supply in an economy consistent with the observed dispersion in average employment rates across individuals. An incomplete markets economy with indivisible labor is presented where agents differ in their disutility of labor and market skills. The model's key parameters are estimated using indirect inference with panel data from the National Longitudinal Survey of the Youth-NLSY. The estimated model implies an elasticity of aggregate employment of 0.71. A simple decomposition reveals that labor disutility dierences, which capture the dispersion in employment rates, are crucial for this quantitative result. These differences alone generate an elasticity of 0.69. Meanwhile, skill differences alone imply an elasticity of 1.1. These results suggest that the literature generates large employment elasticities by ignoring individual labor supply differences.
|Date of creation:||2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org/
More information through EDIRC
|Order Information:|| Email: |
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.:
- Yongsung Chang & Sun-Bin Kim, 2006.
"From Individual To Aggregate Labor Supply: A Quantitative Analysis Based On A Heterogeneous Agent Macroeconomy ,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(1), pages 1-27, 02.
- Yongsung Chang & Sun-Bin Kim, 2003. "From individual to aggregate labor supply : a quantitative analysis based on a heterogeneous agent macroeconomy," Working Paper 03-05, Federal Reserve Bank of Richmond.
- Yongsung Chang & Sun-Bin Kim, 2003. "From Individual to Aggregate Labor Supply: A Quantitative Analysis Based on a Heterogeneous Agent Macroeconomy," Macroeconomics 0307003, EconWPA.
- Mark Bils & Yongsung Chang & Sun-Bin Kim, 2009.
"Comparative Advantage and Unemployment,"
RCER Working Papers
547, University of Rochester - Center for Economic Research (RCER).
- Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2010. "Adjustment Costs, Firm Responses, and Labor Supply Elasticities: Evidence from Danish Tax Records," CAM Working Papers 2010-03, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
- Fatih Guvenen & Anthony Smith, 2010.
"Inferring labor income risk from economic choices: an indirect inference approach,"
450, Federal Reserve Bank of Minneapolis.
- Fatih Guvenen & Anthony Smith, 2010. "Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach," NBER Working Papers 16327, National Bureau of Economic Research, Inc.
- Tony Smith & M. Fatih Guvenen, 2007. "Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach," 2007 Meeting Papers 1024, Society for Economic Dynamics.
- Michael P. Keane & Kenneth Wolpin, .
"Eliminating Race Differences in School Attainment and Labor Market Success,"
CARESS Working Papres
97-5, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
- Keane, Michael P & Wolpin, Kenneth I, 2000. "Eliminating Race Differences in School Attainment and Labor Market Success," Journal of Labor Economics, University of Chicago Press, vol. 18(4), pages 614-52, October.
- Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2009.
"A Three State Model of Worker Flows in General Equilibrium,"
NBER Working Papers
15251, National Bureau of Economic Research, Inc.
- Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegül, 2011. "A three state model of worker flows in general equilibrium," Journal of Economic Theory, Elsevier, vol. 146(3), pages 1107-1133, May.
- Krusell, Per & Mukoyama, Toshihiko & Rogerson, Richard & Sahin, Aysegul, 2009. "A Three State Model of Worker Flows in General Equilibrium," CEPR Discussion Papers 7425, C.E.P.R. Discussion Papers.
- Cho, Jang-Ok, 1995. "Ex post heterogeneity and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 19(3), pages 533-551, April.
- John M. Abowd & David Card, 1986.
"On the Covariance Structure of Earnings and Hours Changes,"
NBER Working Papers
1832, National Bureau of Economic Research, Inc.
- Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March.
- Anthony A. Smith, Jr. & Michael Keane, 2004. "Generalized Indirect Inference for Discrete Choice Models," Econometric Society 2004 North American Winter Meetings 512, Econometric Society.
- 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.
- Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008.
"Taxation, Aggregates and the Household,"
IZA Discussion Papers
3318, Institute for the Study of Labor (IZA).
- Guner, Nezih & Kaygusuz, Remzi & Ventura, Gustavo, 2008. "Taxation, Aggregates and the Household," CEPR Discussion Papers 6702, C.E.P.R. Discussion Papers.
- Nezih Guner & Remzi Kaygusuz & Gustavo Ventura, 2008. "Taxation, aggregates and the household," Working Papers 660, Federal Reserve Bank of Minneapolis.
When requesting a correction, please mention this item's handle: RePEc:fip:fedkrw:rwp11-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lu Dayrit)
If references are entirely missing, you can add them using this form.