Advertising, Labor Supply and the Aggregate Economy: A Long Run Analysis
Working Papers 09.16, Universidad Pablo de Olavide, Department of Economics
41 Pages Posted: 7 Jul 2008 Last revised: 18 Jan 2019
Date Written: November 15, 2009
This paper studies the influence of persuasive advertising in a neoclassical growth model with monopolistically competitive firms. Our findings show that advertising can significantly affect the stationary equilibrium of a model economy in which the labor supply is endogenous. In this case, for empirically plausible calibrations, we find that the equilibrium level of hours worked, GDP, and consumption increase with the amount of resources invested in advertising. These findings are consistent with a new stylized fact provided in this paper: over the past decade, per-capita advertising expenditures have been positively correlated with per-capita output, consumption and hours worked across OECD countries. Because of the connection between advertising and labor supply, we show that our model improves on its neoclassical counterpart in explaining both within-country and cross-country variability of hours worked per capita.
Keywords: Advertising, Labor Wedge, Labor supply, Economic Growth, Hours Worked
JEL Classification: E20, E32, J22
Suggested Citation: Suggested Citation