What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?

By Christian Haefke and Michael Reiter

http://d.repec.org/n?u=RePEc:iza:izadps:dp6039&r=dge

In this paper we use information on the cyclical variation of labor market participation to learn about the aggregate labor supply elasticity. For this purpose, we extend the standard labor market matching model to allow for endogenous participation. A model that is calibrated to replicate the variability of unemployment and participation, and the negative correlation of unemployment and GDP, implies an aggregate labor supply elasticity along the extensive margin of around 0.3 for men and 0.5 for women. This is in line with recent micro-econometric estimates.

Another paper that tries to reconcile macro and micro estimates of the labor supply elasticity. The novel approach here is to exploit information about the participation rate.

About these ads

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 173 other followers

%d bloggers like this: