Macroeconomic Analysis and Microeconomic Analyses of Labor Supply

This paper reports on the current status of the microeconomic research on labor supply behavior. The purpose is to direct attention to microeconomic research that may be helpful in the continuing evaluation of aggregate models designed to explain the dynamic behavior of wages, employment and unemployment. The approach is hopelessly empirical, and the emphasis throughout is on models specified completely enough to allow confrontation with the kind of data actually available.The first part of the paper is addressed to microeconomists, however. It is a brief attempt to provide a sketch of the stylized facts that aggregate models of the labor market are meant to address. These include (1) the serial "persistence" in the change in unemployment (or employment),(2) the absence of persistence in the change in the real wage rate, and (3) the continued existence of a negative correlation between nominal price changes and unemployment rates.The microeconomic (longitudinal) data turn out to be difficult to square up with the simplest life-cycle models of labor supply. Contrary to the predictions of the models, the data indicate that (1) average hours and average real wages move in the same dir