Aggregate Employment and Intertemporal Substitution in the UK

George Alogoskoufis

Economic Journal, 1987, vol. 97, issue 386, 403-15

Abstract: In this paper the author sets up, estimates, and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis. The model is derived as the optimal decision rule of an infinitely-living household maximizing an intertemporal CES utility function over consumption and leisure. The evidence suggests that for aggregate employee hours the model is rejected, but that for the total number of employees in employment the estimates are broadly consistent with the theory. The assumed constant elasticity of substitution is estimated at around 0.2, and this estimate implies a short-run real wage and real interest rate elasticity of labor supply of the same order. Copyright 1987 by Royal Economic Society.

Date: 1987
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