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Intertemporal Labor Supply and Human Capital Accumulation

Susumu Imai and Michael P. Keane
International Economic Review
Vol. 45, No. 2 (May, 2004), pp. 601-641
Stable URL: http://www.jstor.org/stable/3663533
Page Count: 41
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Intertemporal Labor Supply and Human Capital Accumulation
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Abstract

We solve and estimate a dynamic model that allows agents to optimally choose their labor hours and consumption and that allows for both human capital accumulation and savings. Estimation results and simulation exercises indicate that the intertemporal elasticity of substitution is much higher than the conventional estimates and the downward bias comes from the omission of the human capital accumulation effect. The human capital accumulation effect renders the life-cycle path of the shadow wage relatively flat, even though wages increase with age. Hence, a rather flat life-cycle labor supply path can be reconciled with a high intertemporal elasticity of substitution.

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