2011b. Does Indivisible Labor Explain the Di¤erence between Micro and Macro Elasticities? A Meta-Analysis of Extensive Margin Elasticities.NBER Working Paper

Macroeconomic calibrations imply much larger labor supply elasticities than mi-croeconometric studies. One prominent explanation for this divergence is that indivisible labor generates extensive margin responses that are not captured in mi-cro 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 meta-analysis of quasi-experimental estimates of extensive margin elasticities. We \u85nd that micro estimates are consistent with macro evidence on the steady-state (Hick-sian) 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 uctuations 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 evi-dence 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 mar-gin