Search Results
Working Paper
From individual to aggregate labor supply : a quantitative analysis based on a heterogeneous agent macroeconomy
We investigate the mapping from individual to aggregate labor supply using a general equilibrium heterogeneous-agent model with an incomplete market. The nature of heterogeneity among workers is calibrated using wage data from the PSID. The gross worker flows between employment and nonemployment and the cross-sectional earnings and wealth distributions in our model are comparable to those in the micro data. We find that the aggregate labor supply elasticity of such an economy is around 1, bigger than micro estimates but smaller than those often assumed in aggregate models.
Working Paper
Income Volatility and Portfolio Choices
Based on administrative data from Statistics Norway, we find economically significant shifts in households' financial portfolios around structural breaks in income volatility. When the standard deviation of labor-income growth doubles, the share of risky assets decreases by 4 percentage points. We ask whether this estimated marginal effect is consistent with a standard model of portfolio choice with idiosyncratic volatility shocks. The standard model generates a much more aggressive portfolio response than we see in the data. We show that Bayesian learning about the underlying volatility ...
Working Paper
Labor-Market Uncertainty and Portfolio Choice Puzzles
The standard theory of household-portfolio choice is hard to reconcile with the following facts: (i) Households hold a small amount of equity despite the higher average rate of return. (ii) The share of risky assets increases with the age of the household. (iii) The share of risky assets is disproportionately larger for richer households. We develop a life-cycle model with age-dependent unemployment risk and gradual learning about the income profile that can address all three puzzles. Young workers, on average asset poor, face larger labor-market uncertainty because of high unemployment risk ...
Working Paper
Heterogeneity and aggregation in the labor market : implications for aggregate preference shifts
The cyclical behavior of hours of work, wages, and consumption does not conform with the prediction of the representative agent with standard preferences. The residual in the intra-temporal first-order condition for commodity consumption and leisure is often viewed as a failure of labor-market clearing. We show that a simple heterogeneous agent economy with incomplete markets and indivisible labor generates an aggregation error that looks much like the preference residual in aggregate data. Our results caution against viewing the preference residual as a failure of labor-market clearing or a ...
Working Paper
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries
In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. Ignoring this cyclical pattern of composition changes in the consumption basket makes the labor-market wedge -- a measure of inefficiency that reflects the gap between the marginal rate of substitution and the real wage -- appear to be more volatile than it actually is. Based on the household expenditure pattern across 10 consumption categories in the Consumer Expenditure Survey, we show that taking into account these composition changes can explain 6-15% of the cyclicality in the measured ...
Working Paper
On the employment effect of technology : evidence from U.S. manufacturing for 1958-1996
Recently, Gal and others have found that technological progress may be contractionary: a favorable technology shock reduces hours worked in the short run. We ask whether this observation is robust in disaggregate data. According to our VAR analysis of 458 four-digit U.S. manufacturing industries for 1958-1996, some industries do exhibit temporary reduction in hours in response to a permanent increase in TFP. However, there are far more industries in which technological progress significantly increases hours. Using micro data on average price duration, we ask whether the difference across ...
Working Paper
Productivity, employment, and inventories
Marshall made at least four contributions to the classical quantity theory. He endowed it with his Cambridge cash-balance money-supply-and-demand framework to explain how the nominal money supply relative to real money demand determines the price level. He combined it with the assumption of purchasing power parity to explain (i) the international distribution of world money under metallic standards and fixed exchange rates, and (ii) exchange rate determination under floating rates and inconvertible paper currencies. He paired it with the idea of money wage and/or interest rate stickiness in ...
Working Paper
Home production
Studying the incentives and constraints in the non-market sector ? that is, home production ? enhances our understanding of economic behavior in the market. In particular, it helps us to understand (1) small variations of labor supply over the life cycle, (2) large variations of employment relative to wages over the business cycle, and (3) large income differences across countries.
Working Paper
Do technological improvements in the manufacturing sector raise or lower employment?
We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas far more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds that a labor productivity shock has a strong negative effect on employment. There are tantalizing and interesting differences between TFP and labor productivity. We argue that TFP is a more natural measure of technology because labor ...
Journal Article
Labor-Market Wedge under Engel Curve Utility: Cyclical Substitution between Necessities and Luxuries
In booms, households substitute luxuries for necessities, e.g., food away from home for food at home. This cyclical pattern of composition changes in the consumption basket has the potential to reduce the volatility of measures of the labor-market wedge, the gap between the marginal rate of substitution and the real wage. Based on household expenditure patterns from the Consumer Expenditure Survey, we show that this composition bias has only a limited impact on the measured labor-market wedge, accounting for 6 percent to 16 percent of its cyclical volatility.