Intertemporal labor supply and human capital accumulation

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.601-641
Main Authors: Imai, Susumu, Keane, Michael P.
Format: Article
Language:English
Subjects:
Age
Arbeitsplatzangebot
Bildungsinvestition
Costs
Dynamic programming
Dynamisches Modell
Economic models
Economics
Estimation
Estimation bias
Estimation methods
Human capital
Investition
Konsum
Labor supply
Labour supply
Marginal rate of substitution
Modeling
Production functions
Savings
Substitution
Supply
Supply shocks
Theorie
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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.
ISSN:0020-6598
1468-2354
DOI:10.1111/j.1468-2354.2004.00138.x