Abstract
In this paper we compare, in a fully consistent manner, micro and macro labor supply elasticities. The individual elasticity is obtained from the Panel Study of Income Dynamics (PSID). The aggregate, time-series, elasticity is estimated from the aggregation of individual units in the PSID for each year. We rely on exact aggregation of first-order conditions in a lifecycle labor supply model with home production. We find an individual elasticity of approximately 0.1, a low value that is in accordance with standard micro estimates. At the same time, we find an aggregate elasticity near 1. This result derives from a pure aggregation effect, with most of the difference due to the extensive margin. An implication of our result is that micro evidence is not always a reliable guide for calibrating aggregate macroeconomic parameters.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
