Towards a micro-founded theory of aggregate labor supply

Andres Erosa, Luisa Fuster and Gueorgui Kambourov

No 2011-13, Working Papers from Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales

Abstract: We build a heterogeneous life-cycle model which captures a large number of salient features of individual labor supply, by education, over the life cycle. The model provides an aggregation theory of individual labor supply, firmly grounded on micro evidence, and is used to study the aggregate labor supply responses to changes in the economic environment. We find that the aggregate labor supply elasticity to a transitory wage shock is 1.27, with the extensive margin accounting for 54% of the response. Furthermore, we also simulate the 1987 tax holiday in Iceland - a quasi-natural experiment - and find that the aggregate labor supply responses in the model are similar to those actually observed in Iceland.

Keywords: aggregate labor supply; intensive margin; extensive margin; heterogeneous agents; life cycle (search for similar items in EconPapers)
JEL-codes: D9 E13 E2 E62 J22 (search for similar items in EconPapers)
Date: 2011-07-13, Revised 2011-11-23
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab and nep-lma
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Journal Article: Towards a Micro-Founded Theory of Aggregate Labour Supply (2016)
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