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What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?

  • Michael Reiter

    (Institute for Advanced Studies)

  • Christian Haefke

    (Institut for Advanced Studies)

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 microeconometric estimates.

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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 594.

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Date of creation: 2012
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Handle: RePEc:red:sed012:594
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  1. Michael P. Keane & Richard Rogerson, 2012. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Economics Papers 2012-W12, Economics Group, Nuffield College, University of Oxford.
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  3. Chetty, Nadarajan & Weber, Andrea & Guren, Adam Michael & Day, Manoli, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," Scholarly Articles 11878970, Harvard University Department of Economics.
  4. James Costain & Michael Reiter, 2005. "Business Cycles, Unemployment Insurance and the Calibration of Matching Models," Working Papers 215, Barcelona Graduate School of Economics.
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