Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins

Abstract

We develop a heterogeneous-agent general equilibrium model that incorporates both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins. We consider calibrated versions of this model that dier in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the salient features of the empirical distribution of hours worked, including how individuals transit within this distribution. We then study how the various specications inuence labor supply responses to aggregate technology shocks. We nd that abstracting from intensive margin adjustment has large eects on the volatility of aggregate hours even if intensive margin uctuates relatively little.