Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins

44 Pages Posted: 17 Sep 2018 Last revised: 9 Apr 2023

See all articles by Yongsung Chang

Yongsung Chang

University of Rochester - Department of Economics; Yonsei University - Department of Economics

Sun-Bin Kim

Concordia University, Quebec - Department of Economics

Kyooho Kwon

Korea Development Institute (KDI)

Richard Rogerson

Princeton University - Princeton School of Public and International Affairs; Arizona State University (ASU) - Economics Department; National Bureau of Economic Research (NBER)

Date Written: September 2018

Abstract

We study business cycle fluctuations in heterogeneous-agent general equilibrium models that feature both intensive and extensive margins of labor supply. A nonconvexity in the mapping between time devoted to work and labor services combined with idiosyncratic shocks generates operative extensive and intensive margins. We consider calibrated versions of this model that differ in the value of a key preference parameter for labor supply and the extent of heterogeneity. The model is able to capture the salient features of the empirical distribution of hours worked, including how individuals transit within this distribution. We then study how the various specifications influence labor supply responses to aggregate technology shocks. We ask to what extent our predictions for business cycle fluctuations are affected by abstracting from the intensive margin and instead assuming that adjustment occurs only along the extensive margin. We 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.

Suggested Citation

Chang, Yongsung and Kim, Sun-Bin and Kwon, Kyooho and Rogerson, Richard, Individual and Aggregate Labor Supply in Heterogeneous Agent Economies with Intensive and Extensive Margins (September 2018). NBER Working Paper No. w24985, Available at SSRN: https://ssrn.com/abstract=3246782

Yongsung Chang (Contact Author)

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

Yonsei University - Department of Economics ( email )

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Korea

Sun-Bin Kim

Concordia University, Quebec - Department of Economics ( email )

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Canada
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Kyooho Kwon

Korea Development Institute (KDI) ( email )

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Sejong-si 30149
Korea, Republic of (South Korea)

Richard Rogerson

Princeton University - Princeton School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

Arizona State University (ASU) - Economics Department ( email )

Tempe, AZ 85287-3806
United States
480-727-6671 (Phone)
602-965-0748 (Fax)

National Bureau of Economic Research (NBER)

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United States

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