Person:

Guren, Adam Michael

This dissertation consists of three independent chapters, each of which use microeconomic data and methods to inform an analysis of macroeconomic models and questions. The first two chapters study the short-run dynamics of housing markets, while the last chapter studies fluctuations in labor markets.

Macroeconomic calibrations imply much larger labor supply elasticities than microeconometric studies. One prominent explanation for this divergence is that indivisible labor generates extensive margin responses that are not captured in micro studies of hours choices. We evaluate whether existing calibrations of macro models are consistent with micro evidence on extensive margin responses using two approaches. First, we use a standard calibrated macro model to simulate the impacts of tax policy changes on labor supply. Second, we present a metaanalysis of quasi-experimental estimates of extensive margin elasticities. We find that micro estimates are consistent with macro evidence on the steady-state (Hicksian) elasticities relevant for cross-country comparisons. However, micro estimates of extensive-margin elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours. Hence, indivisible labor supply does not explain the large gap between micro and macro estimates of intertemporal substitution (Frisch) elasticities. Our synthesis of the micro evidence points to Hicksian elasticities of 0.3 on the intensive and 0.25 on the extensive margin and Frisch elasticities of 0.5 on the intensive and 0.25 on the extensive margin.

We evaluate whether state-of-the-art macro models featuring indivisible labor are consistent with modern quasi-experimental micro evidence by synthesizing evidence on both the intensive and extensive margins. We find that micro estimates are consistent with macro estimates of the steady-state (Hicksian) elasticities relevant for cross-country comparisons on both the extensive and intensive margins. However, micro estimates of intertemporal substitution (Frisch) elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours by preferences. The key puzzle to be resolved is why micro and macro estimates of the Frisch extensive margin elasticity are so different.