On Intertemporal Substitution and Aggregate Labor Supply

In this paper I present an econometric investigation of the implica-tions of the irlterternporal substitution hypothesis fhr aggregate ern-ployrnent in the United States. The tests are based on a version of the hypothesis with tirne-separable preferences. On the basis of the evidence produced, the hypothesis is quite successful in explaining fluctuations in aggregate employment, although almost totally un-successf~~lin accounting for fluctuations in employee hours. These findings suggest that the hypothesis rnight have an important role to play in macroeconornic rnodeling, although they contradict attempts to account for aggregate fluctuations solely in terrns of continuous competitive equilibrium in labor markets. I