Economics at your fingertips  

Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations

Yongsung Chang () and Sun-Bin Kim ()

American Economic Review, 2007, vol. 97, issue 5, 1939-1956

Abstract: We demonstrate that aggregate employment and consumption can increase without a corresponding movement in productivity in a model with heterogeneous agents where the only aggregate disturbance is a productivity shock. The interaction between incomplete capital markets and indivisible labor results in a low employment-productivity correlation and creates a time-varying wedge between the marginal rate of substitution (for commodity consumption and hours) and productivity. Our results caution against viewing the measured wedge as an inefficiency due to a failure of labor-market clearing or as a fundamental driving force behind business cycles. (JEL D31, E32, J22, J24, J31)

Date: 2007
Note: DOI: 10.1257/aer.97.5.1939
References: Add references at CitEc
Citations: View citations in EconPapers (77) Track citations by RSS feed

Downloads: (external link) (application/pdf) (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().

Page updated 2020-05-24
Handle: RePEc:aea:aecrev:v:97:y:2007:i:5:p:1939-1956