We study business cycle fluctuations in heterogeneous agent general equilibrium models featuring intensive and extensive margins of labor supply. A nonlinear mapping from time devoted to work to labor services generates operative extensive and intensive margins. Our model captures the salient features of the empirical distribution of hours worked, including how individuals transit within this distribution. We study how various specifications influence labor supply responses to aggregate technology shocks and find that abstracting from intensive margin adjustment can have large effects on the volatility of aggregate hours even if fluctuations along the intensive margin are small.
Bibliographical noteFunding Information:
1 We thank Richard Blundell for comments as well as conference participants at Yonsei University, Institute for Fiscal Studies, and the SED Cyprus meeting. We also thank Hyun-Tae Kim and Taegon Yang for their excellent research assistance. This work is supported by grants from the National Research Foundation of Korea funded by the Korean Government (NRF-2016S1A5A2A03926178). Please address correspondence to: Richard Rogerson, Woodrow Wilson School - Department of Economics, Princeton University, 292 Julis Romo Rabinowitz, Princeton, NJ 08544. Phone: 609-258-4839. E-mail: firstname.lastname@example.org.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics