Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective / Michael P. Keane, Richard Rogerson.

Format:

Book

Author/Creator:

Keane, Michael P.

Contributor:

National Bureau of Economic Research.

Rogerson, Richard.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17430.

NBER working paper series no. w17430

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Reconciling Micro and Macro Labor Supply Elasticities

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. This paper surveys recent work that uses structural models and micro data to evaluate the size of this response. Whereas the earlier literature on this issue often concluded that aggregate labor supply elasticities were small, recent work has identified three key reasons that the aggregate elasticity may be quite large. First, earlier estimates abstracted from several key features, including human capital accumulation, leading to estimates that are dramatically negatively biased. Second, failure to understand that aggregate labor supply adjustments can occur along both the hours per worker and employment margins has led economists to misinterpret the implications of previous estimates for aggregate labor supply. Third, structural estimation of responses along the extensive (i.e., employment) margin are typically quite large.

Notes:

Print version record

September 2011.