American Economic Review: Vol. 101 No. 3 (May 2011)


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A Labor Supply Elasticity Accord?

Article Citation

Ljungqvist, Lars, and Thomas J. Sargent. 2011. "A Labor Supply Elasticity Accord?" American Economic Review, 101(3): 487-91.

DOI: 10.1257/aer.101.3.487


A dispute about the size of the aggregate labor supply elasticity has been fortified by a contentious aggregation theory used by real business cycle theorists. The replacement of that aggregation theory with one more congenial to microeconomic observations opens possibilities for an accord about the aggregate labor supply elasticity. The new aggregation theory drops features to which empirical microeconomists objected and replaces them with life-cycle choices. Whether the new aggregation theory ultimately indicates a small or large macro labor supply elasticity will depend on how shocks and government institutions interact to put workers at interior solutions for career length.

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Ljungqvist, Lars (Stockholm School of Economics)
Sargent, Thomas J. (NYU)

JEL Classifications

D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
E24: Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital
E32: Business Fluctuations; Cycles
J22: Time Allocation and Labor Supply

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