“Why Labor Supply Matters for Macroeconomics,” by
Richard Rogerson
Benchmark models taught in undergraduate macro do not
attribute any role for labor supply as an important determinant of
macroeconomic outcomes. The first part of this paper documents three facts.
First, differences in hours of work across OECD economies are large and imply
large differences in GDP per capita. Second, there are large differences in the
size of tax and transfer programs across countries, as proxied by differences
in government revenues relative to the GDP. Third, these two outcomes are strongly
negatively correlated. Taken together, these facts suggest an important role
for labor supply in affecting macroeconomic outcomes. I conjecture that the
reason why macro textbooks do not include a discussion of labor supply stems
from a belief that labor supply elasticities are sufficiently small that even
large differences in work incentives do not generate important macroeconomic
effects. The second part of this paper argues that this belief is based on
incorrect inference linking small elasticities for prime age male to small
aggregate labor supply elasticities. The role of labor supply at the extensive
margin plays a critical role in understanding this mistake in this inference.
“The Shifting Reasons for Beveridge Curve Shifts,”
by Gadi Barlevy, R. Jason Faberman, Bart Hobijn and Ayşegül Şahin
We discuss how the relative importance of factors that
contribute to movements of the US Beveridge curve has changed from 1959 to
2023. We review these factors in the context of a simple flow analogy used to
capture the main insights of search and matching theories of the labor market.
Changes in inflow rates, related to demographics, accounted for Beveridge curve
shifts between 1959 and 2000. A reduction in matching efficiency, that
depressed unemployment outflows, shifted the curve outwards in the wake of the
Great Recession. In contrast, the most recent shifts in the Beveridge curve
appear driven by changes in the eagerness of workers to switch jobs. Finally,
we argue that, while the Beveridge curve is a useful tool for relating
unemployment and job openings to inflation, the link between these labor market
indicators and inflation depends on whether and why the Beveridge curve
shifted. Therefore, a careful examination of the factors underlying movements
in the Beveridge curve is essential for drawing policy conclusions from the
joint behavior of unemployment and job openings.
Why are average weekly hours worked declining?