Habit persistence and the long-run labor supply

Clemens C. Struck

Economics Letters, 2014, vol. 124, issue 2, 243-247

Abstract: Standard macroeconomic models possess the undesirable feature that people stop working in the long run. Assuming standard parameters, the neoclassical model predicts that 2% of annual productivity growth leads to a 99% decline in the labor supply after 624 years. Yet, this contradicts the fact that labor hours per capita are relatively stable, even over a long period of time. This paper shows how internal and external habit persistence each work to stabilize the long run labor supply, independent of key parameter choices.

Keywords: Habit formation; Labor supply; Long-run (search for similar items in EconPapers)
JEL-codes: E13 E20 E24 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:2:p:243-247

DOI: 10.1016/j.econlet.2014.05.027

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