Econometrica: Apr 1980, Volume 48, Issue 3

Unemployment as Disequilibrium in a Model of Aggregate Labor Supply

DOI: 0012-9682(198004)48:3<547:UADIAM>2.0.CO;2-Z
p. 547-564

Orley Ashenfelter

This paper is an exploration of the empirical implications for the behavior of consumer-workers of treating unemployment as a constraint on choice rather than the result of it. The consequences of one family member's unemployment for the constrained commodity demand functions and the labor supply functions of other family members are first examined and then the normative interpretation of unemployment's compensation is considered. The final section of the paper contains estimates of a simple set of aggregate labor supply and commodity demand functions that are based on utility maximization and that explicitly recognize the presence of both constrained and unconstrained microeconomic units.

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