by London School of Economics and Political Science, Centre for Labour Economics .
Written in English
|Statement||by George Alogoskoufis.|
|Series||Discussion paper -- 234|
|Contributions||London School of Economics and Political Science. Centre for Labour Economics.|
AGGREGATE EMPLOYMENT AND INTERTEMPORAL SUBSTITUTION IN THE UK* George S. Alogoskoufis It is now more than fifteen years since Lucas and Rapping (LR) first published their influential paper on intertemporal substitution and labour supply. Their approach, although at first intended as the microfoundations of Keynesian labour. In this paper the author sets up, estimates, and tests an explicit model of aggregate labor supply based on the intertemporal substitution hypothesis. The model is derived as the optimal decision rule of an infinitely-living household maximizing an intertemporal CES utility function Author: George S Alogoskoufis. Intertemporal substitution and household production in labour supply Guillermo Felices * and David Tinsley** Working Paper no. * Monetary Analysis, Bank of England, Threadneedle Street, London, EC2R 8AH. E-mail: [email protected] ** Oxford Economic Forecasting, Abbey House, St Aldates, Oxford, OX1 1HB. Alogoskoufis, G. S. () Aggregate employment and intertemporal substitution in the UK, Economic Journal, 97, – CrossRef Google Scholar Altonji, J. G. () The intertemporal substitution model of labour market fluctuations: an empirical analysis, Review of Economic Studies, 49 (supplement), –
Alogoskoufis, George S, "Aggregate Employment and Intertemporal Substitution in the UK," Economic Journal, Royal Economic Society, vol. 97(), pages , June. David Card, "Intertemporal Labor Supply: An Assessment," Working Papers , Princeton University, Department of Economics, Industrial Relations Section. The paper uses two approaches to study whether aggregate fluctuations in employment and unemployment may be explained within a market clearing framework as intertemporal substitution . The Eﬀects of Macroeconomic Policy Shocks on the UK Labour ) suggest that aggregate output and employment decline following a hump-shaped pattern in response to a contractionary monetary policy shock. Economic theory (Hammermesh , Ch. 6) suggests that following a shock the response of Both the intertemporal substitution e. Alogoskoufis, G. S. (b). On Intertemporal Substitution and Aggregate Labour l of Political Economy – Article; Google Scholar.
Under this assumption, the intertemporal elasticity of substitution can be estimated in panel datasets as the wage coefficient in a log-linear hours equation with fixed effects. I argue that, in principle, intertemporal substitution models predict similar correlations between employment and wage and price inflation as for example Sargan ()-type wage equations, and that it is not too surprising that they fit reasonably well to UK time series. One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rated. Substitution is not a myth and it is not simply a “must have” clause in a contract for services to demonstrate self-employment. Substitution can happen in practice and it does facilitate the argument that someone is genuinely self-employed.