AGGREGATION WITH SEQUENTIAL INDIVISIBLE AND CONTINUOUS LABOR SUPPLY DECISIONS AND AN INFORMAL SECTOR

Aleksandar Vasilev

Theoretical and Practical Research in the Economic Fields, 2017, vol. 8, issue 2, 144-148

Abstract: The purpose of this paper is to explore the problem of non-convex labor supply decision in an economy with both discrete and continuous labor decisions. In contrast to the setup in Vasilev (2016a), here each household faces a sequential labor market choice - an indivisible labor supply choice in the market sector, and conditional on non-working in the official sector, a divisible hours choice in the informal sector. We show how lotteries as in Rogerson (1988) can again be used to convexify consumption sets, and aggregate over individual preferences. With a mix of sequential discrete and continuous labor supply decisions, aggregate disutility of non-market work becomes separable from market work, and the elasticity of the latter increases from unity to infinity.

Date: 2017
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Related works:
Journal Article: Aggregation with sequential indivisible and continuous labor supply decisions and an informal sector (2017)
Working Paper: Aggregation with sequential indivisible and continuous labor supply decisions and an informal sector (2017)
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