Efficiency Units of Labor: Life-Cycle Profiles Estimates from the CPS 1987-2017

This note provides a set of estimates of the efficiency units profiles that workers supply over the life-cycle in the U.S. labor market. These are helpful for the calibration of OLG models. I rely on data from the March CPS in the 1987-2017 period, and use both non-parametric and parametric estimation methods. Irrespective of the methodology used to obtain the profiles, I find that they differ in essential features from the ones that are typically used in applied work. In terms of the quantitative answers obtained from a life-cycle OLG model with idiosyncratic income shocks and incomplete markets, the discrepancies in the efficiency units profiles are found to be sizable. In terms of consumption equivalent variation, households' welfare decreases by up to 5 percentage points when moving from the standard profiles to the ones estimated here. Quantitatively, the specific profile used have also a substantial impact on the variables that are typically analyzed with this class of models, such as the saving behavior over the life-cycle and the concentration of wealth. JEL Classification: D15, D52, D58, E21