The Intertemporal-Substitution Hypothesis is Alive and Well (But Hiding in the Data)

Arbeitspapier

According to the intertemporal-substitution hypothesis, which underlies the typical empirical real business cycle model, cyclical fluctuations in employment and hours of work are optimizing labor-supply responses to short-run aggregate demand shifts. We demonstrate that previous empirical labor-supply research has used inappropriate data to test the intertemporal-substitution hypothesis. We estimate a fixed-effects life-cycle labor-supply model with more informative data, the triannual micro data of the Survey of Income and Program Participation. We find economy-wide wage elasticities of employment and hours worked per employee of +1.55 and +0.51, which support the intertemporal-substitution hypothesis and give econometric credibility to the labor-market specification of empirical real business cycle models.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Upjohn Institute Working Paper ; No. 93-19

Classification and Topics

• Classification: Wirtschaft
• Subject: intertemporal-substitution ; cycle ; Kneisner ; Kimmel

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kimmel, Jean
• Event: Veröffentlichung
• (who): W.E. Upjohn Institute for Employment Research
• (where): Kalamazoo, MI
• (when): 1993

Further information

• DOI: doi:10.17848/wp93-19
• Handle: http://hdl.handle.net/10419/172354
• Last update: 10.03.2025, 11:44 AM CET