foundations of aggregate labor supply

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1、Chapter29FoundationsofAggregateLaborSupply29.1.IntroductionThesection28.6employmentlotteriesmodelforyearsservedasthefoundationofthehighaggregatelaborsupplyelasticitythatgeneratesbigemploymentfluc-tuationsinrealbusinesscyclemodels.IntheoriginalversionofhisNobelprizelecture,Prescott(2005a)highlighte

2、dthecentralroleofemploymentlotteriesforrealbusinesscyclemodelswhenheassertedthat“Rogerson’saggregationresultiseverybitasimportantastheonegivingrisetotheaggregateproduc-tionfunction.”ButPrescott’senthusiasmforemploymentlotterieshasnotbeenshareduniversally,especiallybyresearcherswhohavestudiedlabor

3、marketex-periencesofindividualworkers.Forexample,Browning,Hansen,andHeckman(1999)expresseddoubtsabouttheemploymentlotteriesmodelwhentheyas-sertedthat“theemploymentallocationmechanismstrainscredibilityandisatoddswiththemicroevidenceonindividualemploymenthistories.”Thischap-tertakessuchcriticismsof

4、theemploymentlotteriestoheartbyinvestigatinghowtheaggregatelaborsupplyelasticitywouldbeaffectedwerewetoreplaceemploymentlotteriesandcompletemarketsforconsumptioninsurancewiththeincompletemarketsarrangementsthatseemmorenaturaltolaboreconomists.Thischangereorientsattentionawayfromthefractionofitsmem

5、bersthatarepresentativefamilychoosestosendtoworkatanymoment,tocareerlengthschosenbyindividualworkerswhoself-insurebysavinganddissaving.Wefindthatabandoningtheemploymentlotteriescoupledwithcompleteconsumptioninsuranceclaimstradingassumedwithinmanyrealbusinesscyclemodelsandre-placingthemwithindividu

6、alworkerswhoself-insurebytradingarisk-freebonddoesnotbyitselfimperilthathighaggregatelaborsupplyelasticitychampionedbyPrescott.Thelaborsupplyelasticitydependsonwhethershocksandgov-ernmentfinancedsocialsecurityretirementschemesleavemostworkersonoroffcornerswithrespecttotheirretirementdecisions,inamo

7、delofindivisiblelabor.–1203–1204FoundationsofAggregateLaborSupplyDuringthelasthalfdecade,macroeconomistshavemostlyabandonedem-ploymentlotteriesinfavorof‘time-averaging’andincompletemarketsasan‘aggregation’theoryforaggr