Indivisible labor and the business cycle

Abstract

A growth model with shocks to technology is studied. Labor is indivisible, so all variability in hours worked is due to fluctuations in the number employed. We find that, unlike previous equilibrium models of the business cycle, this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity. This finding is independent of individuals' willingness to substitute leisure across time. This and other findings are the result of studying and comparing summary statistics describing this economy, an economy with divisible labor, and post-war U.S. time series.

R&D and Aggregate Fluctuations

“…Hansen (1985), Castro and Coen-Pirani (2008)), especially at annual frequencies. 25 The theory could also be summarized by an indivisible labor model a la Hansen (1985) and Rogerson (1988). In that case, the optimality conditions for labor supply in the theoretical model would be slightly di¤erent but the main theoretical arguments would remain una¤ected.…”

“…Outputs Y Rt and Y Ct are obtained by dividing real R&D investment and real aggregate output in the consumption good sector by the population 24 Previous studies also indicate that most variation in total hours is due to variation in employment than variation in individual hours (e.g. Hansen (1985), Castro and Coen-Pirani (2008)), especially at annual frequencies. 25 The theory could also be summarized by an indivisible labor model a la Hansen (1985) and Rogerson (1988).…”

“…30 These results show that under this speci…cation of the model, investment-speci…c shocks and neutral productivity shocks explain 40.2 and 33.3 percent of the variability of NIPA output while the combined e¤ect of technology shocks is 90.3 percent; this result is not too di¤erent from …ndings of previous studies that used quarterly data. 31 The combined e¤ect of technology shocks on productiv- 30 In the model of section 3, the R&D channel is closed when 1 = 0. …”

Comparing Solution Methods for a Basic RBC Model

“…We present and compare different solution methods for computing one of basic RBC models, particularly, Hansen (1985) indivisible RBC model. Hansen's model, regarded as one of the most successful RBC models in terms of its conceptual simplicity and empirical performance, is the stochastic neoclassical growth model with indivisible labor choices.…”

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ABSTRACTThis short article compares different solution methods for a basic RBC model (Hansen, 1985). We solve and simulate the model using two main algorithms: the methods of perturbation and projection, respectively.

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