Intertemporal Labor Supply and Involuntary Unemployment

35 Pages Posted: 12 Jul 2007

See all articles by Peter Haan

Peter Haan

DIW Berlin, German Institute for Economic Research; IZA Institute of Labor Economics

Arne Uhlendorff

IZA Institute of Labor Economics

Date Written: June 2007

Abstract

In this paper we develop a model to consistently estimate the intertemporal labor supply behavior on the extensive margin (participation decision) and the intensive margin (working hours decision). In this framework we distinguish between voluntary non-participation and involuntary unemployment which is caused by labor market rationing and model the dynamics of labor supply by accounting for true state dependence and unobserved effects. Our approach follows the empirical literature on life cycle employment based on approximate decision rules. However, in contrast to previous studies, this framework allows us to test for true state dependence of voluntary non-participation, involuntary unemployment, full-time work and over-time work. Moreover, we derive consistent estimates of intertemporal labor supply elasticities over time and asses the bias of short- and long-run elasticities derived in a pure choice model of labor supply.

Keywords: intertemporal labor supply behavior, transitions on the labor market, state dependence, involuntary unemployment

JEL Classification: C23, C25, J22, J64

Suggested Citation

Haan, Peter and Uhlendorff, Arne, Intertemporal Labor Supply and Involuntary Unemployment (June 2007). IZA Discussion Paper No. 2888. Available at SSRN: https://ssrn.com/abstract=1000132

Peter Haan

DIW Berlin, German Institute for Economic Research ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Arne Uhlendorff (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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