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What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?

  • Haefke, Christian

    ()

    (New York University, Abu Dhabi)

  • Reiter, Michael

    ()

    (IHS - Institute for Advanced Studies, Vienna)

In this paper we use information on the cyclical variation of labor market participation to learn about the aggregate labor supply elasticity. For this purpose, we extend the standard labor market matching model to allow for endogenous participation. A model that is calibrated to replicate the variability of unemployment and participation, and the negative correlation of unemployment and GDP, implies an aggregate labor supply elasticity along the extensive margin of around 0.3 for men and 0.5 for women. This is in line with recent micro-econometric estimates.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6039.

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Length: 34 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6039
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  22. Pascal Michaillat, 2010. "Do Matching Frictions Explain Unemployment? Not in Bad Times," CEP Discussion Papers dp1024, Centre for Economic Performance, LSE.
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  31. repec:spo:wpecon:info:hdl:2441/5l6uh8ogmqildh09h48226q18 is not listed on IDEAS
  32. repec:spo:wpecon:info:hdl:2441/8921 is not listed on IDEAS
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