INTERTEMPORAL LABOR SUPPLY AND HUMAN CAPITAL ACCUMLATION

We solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings. Estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than t...

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Bibliographic Details
Published in:International economic review (Philadelphia) 2004-05, Vol.45 (2), p.601
Main Authors: Imai, Susumu, Keane, Michael P
Format: Article
Language:English
Subjects:
Economic models
Economic theory
Human capital
Labor supply
Studies
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Summary:We solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings. Estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect. The human capital accumulation effect renders the life-cycle path of the shadow wage relatively flat, even though wages increase with age. Hence, a rather flat life-cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution. [PUBLICATION ABSTRACT]
ISSN:0020-6598
1468-2354