 Labor Supply Elasticities: Can Micro Be Misleading for Macro?University of Siena and Riccardo Fiorito () No 902, 2008 Meeting Papers from Society for Economic Dynamics Abstract: In this paper we compare in a consistent way micro and macro labor supply elasticities. The individual elasticity is obtained from the Panel Study of Income Dynamics (PSID). The aggregate, time-series, elasticity is estimated from the exact aggregation of the individual units in the PSID, each year. Our aggregation procedure is legitimate since it relies on exact aggregation of first-order conditions in a simple life-cycle labor supply model with home production. We find that the individual elasticity is about 0.1, a low value that agrees with standard micro estimates, but that the aggregate elasticity is 1.5, a much larger value that incidentally agrees with the pioneering estimate of Lucas and Rapping (1969). This result derives from a pure aggregation effect: not surpisingly, most of the difference is due to the extensive margin, i.e. participation/employment decisions. An implication of our result is that micro evidence is not always a reliable guidance for calibrating aggregate macroeconomic parameters. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:902 Access Statistics for this paper More papers in 2008 Meeting Papers from Society for Economic Dynamics Contact information at EDIRC. |
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