Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins

By Raj Chetty, Adam M. Guren, Dayanand Manoli, Andrea Weber. 2011

795 citations recorded by the source corpus.

We evaluate whether state-of-the-art macro models featuring indivisible labor are consistent with modern quasi-experimental micro evidence by synthesizing evidence on both the intensive and extensive margins. We find that micro estimates are consistent with macro estimates of the steady-state (Hicksian) elasticities relevant for cross-country comparisons on both the extensive and intensive margins. However, micro estimates of intertemporal substitution (Frisch) elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours by preferences. The key puzzle to be resolved is why micro and macro estimates of the Frisch extensive margin elasticity are so different.

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Citations in the corpus

Financial Frictions in Production Networks (2016, background): “A useful discussion is found in Chetty et al. (2011) and Ljungqvist and Sargent (2011). Here, we follow other macroeconomic papers, for example Hall (2009), and study the behavior of our model for a Frisch elasticity of 2 hoping that this elasticity labor market frictions left out of our model.”
Robots and Jobs: Evidence from US Labor Markets (2019, methodology): “consistent with the observed short-run movements in wages and employment (see table 1 in Chetty et al. 2011).”
Comparing Labor Supply Elasticities in Europe and the United States (2014, methodology): “We focus our analysis on labor supply responses in a static framework (referred to by Chetty et al. 2011 as steady-state elasticities). We exclusively analyze labor supply decisions (hours and participation) and ignore the other margins captured in the literature concerning the elasticity of taxable”
Cross-Country Heterogeneity in Intertemporal Substitution (2015, methodology): “Meta-analysis, which has been employed in economics by Card & Krueger (1995), Ashenfelter et al. (1999), Stanley (2001), Disdier & Head (2008), and Chetty et al. (2011), among others, allows us to examine systematically the influence of methodology on results.”
Families in Macroeconomics (2016, unknown): “…+wm + y ψ wm + y and the elasticity of their labor supply is: @Nmf @wf wf Nmf ¼ wf λf ðwf +wm + y ψÞ F 0 1 λf log wf +wm + y ψ wm + y F 1 λf log wf +wm + y ψ wm + y : o Recent contributions that explicitly consider the extensive margin include Chetty et al. (2011, 2012) and Attanasio et al. (2015).”
Heterogeneity and Government Revenues: Higher Taxes at the Top? (2014, unknown): “(9) The capital stock depreciates at the constant rate δ.”
On DSGE Models (2018, unknown): “This raises the quantitive question; how does a binding ZLB constraint on the nominal interest rate a↵ect the size of the government spending multiplier? Christiano et al. (2011) (CER) address this question in a DSGE model, assuming all taxes are lump-sum. A basic principle that emerges from their a”
Productivity and Misallocation in General Equilibrium* (2017, methodology): “We calibrate a version of our quantitative model from Section 4, but augmented with a labor-leisure choice, and a Frisch elasticity of labor supply of ν = 1/2 , which is broadly consistent with the recommendation of Chetty et al. (2011). We create two copies of each firm in our sample, one copy has ”
Information Acquisition and Welfare (2014, unknown): “E[̄] 2  ≡ [ 2 − ( − 1)(2)] + (1−) ( − 1) [ ( − 1)− 1] 2(+  − 1) (17)”
Extensive and Intensive Margins of Labour Supply: Work and Working Hours in the US, the UK and France* (2013, unknown): “7Blundell and MaCurdy, 1999; Chetty et al., 2011.”
How Important are Sectoral Shocks (2014, methodology): “In the appendix, I re-estimate the model using larger values for εLS, closer to the values given in Chetty et al. (2011).”
Racing with or Against the Machine? Evidence from Europe (2016, unknown): “We build on Goos et al. (2014) and distinguish tradable and non-tradable goods in order to model the spatial reallocation of labor demand resulting from RRTC.”
Bank Competition and Financial Stability: Much Ado About Nothing? (2015, unknown): “Recent applications of meta-analysis include Chetty et al. (2011), who explore the intertemporal elasticity of substitution in labor supply, Doucouliagos et al. (2012), who investigate the link between chief executives’ pay and corporate performance, and Babecky and Havranek (2014), who evaluate…”
Transmission of Monetary Policy with Heterogeneity in Household Portfolios (2018, background): “75 in line with estimates by Chetty et al. (2011). The time-discount factor, β = 0.98, and the capital market participation frequency, ν = 0.065, are jointly calibrated to match the ratio of capital and government bonds to output.18 I equate capital to all capital goods relative to nominal GDP. The ”
Understanding the Gains from Wage Flexibility: The Exchange Rate Connection (2016, methodology): “That value is associated with a steady state price markup of 35 percent, and is consistent with the evidence used in the calibration of the ECBs New Area Wide Model (NAWM) of Christo¤el et al. (2008). Given that setting, a value of 0:26 for parameter is consistent with the observed 0:55 average lab”