Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom
Michael Keane () and
Richard Rogerson ()
Journal of Economic Literature, 2012, vol. 50, issue 2, 464-76
The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. Conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small. In this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions. In particular, we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin. We conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities. (JEL D91, E24, J22)
JEL-codes: D91 E24 J22 (search for similar items in EconPapers)
Note: DOI: 10.1257/jel.50.2.464
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (156) Track citations by RSS feed
Downloads: (external link)
Access to full text is restricted to AEA members and institutional subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:aea:jeclit:v:50:y:2012:i:2:p:464-76
Ordering information: This journal article can be ordered from
Access Statistics for this article
Journal of Economic Literature is currently edited by Steven Durlauf
More articles in Journal of Economic Literature from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().