Cross-sectional and Aggregate Labor Supply

Cross-sectional and Aggregate Labor Supply
Author: Yongsung Chang
Publisher:
Total Pages:
Release: 2019
Genre:
ISBN:

Standard heterogeneous agent macro models that highlight idiosyncratic productivity shocks do not generate the near zero cross-sectional correlation between hours and wages found in the data. We ask whether matching this moment matters for business cycle properties of these models. To do this we explore two extensions of the model in Chang et al. (2019) that can match this empirical cross-section correlation. One of these departs from the assumption of balanced growth preferences. The other introduces an idiosyncratic shock to the opportunity cost of market work that is highly correlated with the shock to market productivity. While both extensions can match the empirical correlation, they have large and opposing effects on the cyclical volatility of the labor market. We conclude that the cross-sectional moment is important for business cycle analysis and that more work is needed to distinguish the potential mechanisms that can generate it.

The Aggregate Labor Supply Curve at the Extensive Margin

The Aggregate Labor Supply Curve at the Extensive Margin
Author: Preston Mui
Publisher:
Total Pages: 82
Release: 2019
Genre: Business cycles
ISBN:

We present a theoretically robust and empirically tractable representation of the aggregate labor supply curve at the extensive (employment) margin. First, we introduce the simple and basic concept of the reservation wedge: the hypothetical percent shift in an individual's potential earnings required to render her indifferent between employment and nonemployment. This concept generalizes reservation wages to the context of heterogeneity in earnings. For any given specific model, the reservation wedge serves as the sole scalar sufficient statistic for employment preferences. The CDF of the reservation wedges is the aggregate labor supply curve at the extensive margin. Second, we directly measure the wedge distribution in a representative household survey -- thereby nonparametrically mapping out the global labor supply curve of the U.S. population. For small deviations, the empirical curve exhibits large Frisch elasticities above 3, hence locally consistent with business cycle evidence. Rather than constant, the empirical arc elasticities shrink towards 0.5 for larger, upward shifts, thereby potentially also reconciling large local elasticities with the small arc elasticities implied by recent quasi-experimental evidence from tax holidays. Third, in a model meta-analysis, existing models would fail to match the global shape of this empirical curve. Fourth, we engineer one model to fit the empirical curve. A business cycle accounting exercise reveals that this fitted model (under the assumption of efficient rationing) would help reconcile cyclical employment fluctuations with labor supply.

Nonparametric Structural Estimation of Labor Supply in the Presence of Censoring

Nonparametric Structural Estimation of Labor Supply in the Presence of Censoring
Author: Che-Yuan Liang
Publisher:
Total Pages: 0
Release: 2014
Genre:
ISBN:

This paper extends the nonparametric structural method to estimate labor supply developed by Blomquist and Newey (2002) to handle cases in which there are individuals who do not work. The method is then applied to married women in Sweden from 1973 to 1999. I find an uncompensated wage elasticity of 0.98 and an income elasticity of 0.10, with the participation margin accounting for one third of the wage elasticity and two thirds of the income elasticity. The elasticities vary, however, a lot over time due to differences in tax systems and demographics. I also find results consistent with tax rates being around the net government revenue maximizing rates.

A Downward-Sloping Labor Supply Curve

A Downward-Sloping Labor Supply Curve
Author: Gustavo Yamada
Publisher:
Total Pages: 0
Release: 2008
Genre:
ISBN:

The author finds evidence of a downward-sloping labor supply curve for urban areas in Peru from cross-sectional household data for 2002 and pooled data for available years from 1985 to 2000. Individuals respond to lower hourly earnings with an increase in the quantity supplied of work hours. This behavior would help to explain the increasing trend in average work hours in Peru (this average for male workers in Lima, the capital city, rose from 50.5 to 53.9 weekly hours between 1985 and 2000; meanwhile, 33.4% of workers had weekly schedules above 60 hours in 2002). Another finding is the increase in hours supplied due to pressure from the more numerous cohorts recently entering the Peruvian labor market.