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Towards a Micro-Founded Theory of Aggregate Labour Supply

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URI: https://hdl.handle.net/10016/25250
ISSN: 0034-6527
DOI: https://doi.org/10.1093/restud/rdw010
UXXI: AR/0000018195
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towards_erosa_RES_2016_ps.pdf (838.18 KB)
appendix_towards_erosa_RES_2016_ps.pdf (2.9 MB)
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2016-07-01
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Oxford University Press
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Abstract
We build a heterogeneous agents life cycle model that captures a large number of salient features of individual male labour supply over the life cycle, by education, both along the intensive and extensive margins. The model provides an aggregation theory of individual labour supply, firmly grounded on individual-level micro-evidence, and is used to study the aggregate labour supply responses to changes in the economic environment. We find that the aggregate labour supply elasticity to a transitory wage shock is 1.75, with the extensive margin accounting for 62% of the response. Furthermore, we find that the aggregate labour supply elasticity to a permanent-compensated wage change is 0.44.
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Aggregate labour supply, Intensive margin, Extensive margin, Life cycle, Fixed cost of work, Non-linear earnings, Precautionary savings, Preference heterogeneity, Life-cycle model
Bibliographic citation
Erosa, A., Fuster, L. and Kambourov, G. (2016), Towards a Micro- Founded Theory of Aggregate Labour Supply. Review of Economic Studies, v.83, n.3, pp. 1001-1039
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