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Hours and Employment in the Cross-Section and Over the Cycle

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Listed:
  • Sun-Bin Kim

    (Yonsei University)

  • Richard Rogerson

    (Princeton University)

  • Yongsung Chang

    (University of Rochester / Yonsei Univ.)

Abstract

We develop a heterogeneous-agent general equilibrium model that incorporates both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins. We consider calibrated versions of this model that differ in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the key features of the empirical hours worked distribution, including how individuals transit within this distribution. We then study how the various specifications influence labor supply responses to temporary shocks and permanent tax changes, with a particular focus on the intensive and extensive margin elasticities in response to these changes. A key finding is that these two elasticities are jointly determined and cannot be thought of as two independent properties of aggregate labor supply.

Suggested Citation

  • Sun-Bin Kim & Richard Rogerson & Yongsung Chang, 2012. "Hours and Employment in the Cross-Section and Over the Cycle," 2012 Meeting Papers 82, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:82
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    1. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-1085, December.
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