American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Comment
American Economic Review
vol. 104,
no. 4, April 2014
(pp. 1446–60)
Abstract
Chang and Kim (2007) develop an incomplete asset markets model incorporating discrete labor supply and idiosyncratic labor productivity. Their results resolve long-standing puzzles for business cycle models. Specifically, they produce a low correlation between aggregate hours worked and labor productivity (0.23) and a labor wedge with 76 percent the volatility of output. I show that these results arise from errors in their computational method. I resolve their model using a corrected method and find a strong, positive correlation between hours and productivity (0.80). Fluctuations in the labor wedge decrease to 24 percent of those in output.Citation
Takahashi, Shuhei. 2014. "Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Comment." American Economic Review, 104 (4): 1446–60. DOI: 10.1257/aer.104.4.1446Additional Materials
JEL Classification
- D31 Personal Income, Wealth, and Their Distributions
- E32 Business Fluctuations; Cycles
- J22 Time Allocation and Labor Supply
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials