Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective

This survey deals with an issue that is extremely important for a wide range of applied issues - the magnitude of aggregate labor supply responses to various changes in the economic environment.  In addition to being a very important issue, it is also well known to be quite controversial.  In particular, there is a long-standing controversy driven by the fact that on the one hand, researchers who look at micro data typically estimate relatively small labor supply elasticities, while on the other hand, researchers who use representative agent models to study aggregate outcomes typically employ parameterizations that imply relatively large aggregate labor supply elasticities.