We propose a new VAR identification scheme that distinguishes shifts of and movements along the labor demand schedule to identify labor-supply shocks. According to our VAR analysis of post-war US data, labor-supply shifts account for about 30 percent of the variation in hours and about 15 percent of the output fluctuations at business cycle frequencies. To assess the role of labor-supply shifts in a more structural framework, estimates from a dynamic general equilibrium model with stochastic variation in home production technology are compared to those from the VAR.
Bibliographical noteFunding Information:
Marco Airaudo provided excellent research assistance. We wish to thank Larry Christiano, Frank Diebold, Martin Eichenbaum, John Geweke, Michael Kiley, Richard Rogerson, and Chris Sims for helpful comments and suggestions. Thanks also to seminar participants at the NBER Summer Institute, University of Pennsylvania, Princeton, Rochester, ISBA Regional Meeting, USC, Econometric Society Meetings, the Federal Reserve Bank of Cleveland, and the Board of Governors. The second author gratefully acknowledges financial support from the University of Pennsylvania Research Foundation. The GAUSS programs to implement the empirical analysis are available at http://www.econ.upenn.edu/~schorf .
All Science Journal Classification (ASJC) codes
- Economics and Econometrics