What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?

34 Pages Posted: 30 Oct 2011

See all articles by Christian Haefke

Christian Haefke

Institute for Advanced Studies (IHS); NYU, Abu Dhabi; IZA Institute of Labor Economics

Michael Reiter

Institute for Advanced Studies (IHS)

Abstract

In this paper we use information on the cyclical variation of labor market participation to learn about the aggregate labor supply elasticity. For this purpose, we extend the standard labor market matching model to allow for endogenous participation. A model that is calibrated to replicate the variability of unemployment and participation, and the negative correlation of unemployment and GDP, implies an aggregate labor supply elasticity along the extensive margin of around 0.3 for men and 0.5 for women. This is in line with recent micro-econometric estimates.

Keywords: matching models, labor market participation, labor supply elasticity

JEL Classification: E24, E32, J21, J64

Suggested Citation

Haefke, Christian and Reiter, Michael, What Do Participation Fluctuations Tell Us About Labor Supply Elasticities?. IZA Discussion Paper No. 6039, Available at SSRN: https://ssrn.com/abstract=1951330 or http://dx.doi.org/10.2139/ssrn.1951330

Christian Haefke (Contact Author)

Institute for Advanced Studies (IHS) ( email )

Josefstädter Straße 39
1080 Vienna
Austria

NYU, Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael Reiter

Institute for Advanced Studies (IHS) ( email )

Josefstaedter Strasse 39
Vienna, A-1080
Austria

Do you want regular updates from SSRN on Twitter?

Paper statistics

Downloads
52
Abstract Views
486
rank
505,823
PlumX Metrics