Year

1993

Series

Upjohn Institute Working Paper No. 93-19

Published Version

Journal of Monetary Economics 42 (October 1998): 289-301 under the title "New Evidence on Labor Supply : Employment versus Hours Elasticities by Sex and Marital Status"

Abstract

According to the intertemporal-substitution hypothesis, which underlies the typical empirical real business cycle model, cyclical fluctuations in employment and hours of work are optimizing labor-supply responses to short-run aggregate demand shifts. We demonstrate that previous empirical labor-supply research has used inappropriate data to test the intertemporal-substitution hypothesis. We estimate a fixed-effects life-cycle labor-supply model with more informative data, the triennial micro data of the Survey of Income and Program Participation. We find economy-wide wage elasticities of employment and hours worked per employee of +1.55 and +0.51, which support the intertemporal-substitution hypothesis and give econometric credibility to the labor-market specification of empirical real business cycle models.

Issue Date

April 1993

Sponsorship

Financial support from the Office of the Vice-President for Research and the University Graduate School of Indiana University, Bloomington

Subject Areas

EMPLOYMENT and COMPENSATION