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From Individual to Aggregate Labor Supply: A Quantitative Analysis Based on a Heterogeneous Agent

By Yongsung Chang, John Kennan, Narayana Kocherlakota, Thomas Macurdy, Cesaire Meh and Richard Rogerson


We investigate the mapping from individual to aggregate labor supply using a general equilibrium heterogeneous-agent model with an incomplete market. The nature of heterogeneity among workers is calibrated using wage data from the PSID. The gross worker flows between employment and nonemployment and the cross-sectional earnings and wealth distributions in our model are comparable to those in the micro data. We find that the aggregate labor supply elasticity of such an economy is around 1, bigger than micro estimates but smaller than those often assumed in aggregate models

Topics: Aggregate Labor Supply Elasticity, Heterogeneity, Indivisible Labor JEL Classification, E24, E32, J21, J22 * We thank Robert Shimer for sharing his monthly worker transition-rate data with us. We thank S
Year: 2006
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